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Short Put Vs Bull Put Spread Options Trading Strategy Comparison

Compare Short Put and Bull Put Spread options trading strategies. Find similarities and differences between Short Put and Bull Put Spread strategies. Find the best options trading strategy for your trading needs.

Short Put Vs Bull Put Spread

  Short Put Bull Put Spread
Short Put Logo Bull Put Spread Logo
About Strategy A short put is another Bullish trading strategy wherein your view is that the price of an underlying will not move below a certain level. The strategy involves entering into a single position of selling a Put Option. It has low profit potential and is exposed to unlimited risk. A short put strategy involves selling a Put Option only. For example if you see that the shares of a Company A will not move below Rs 1000 then you sell the Put Option of that stock at Rs 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this trade. However, if the price of the underlying moves below 1000 then you will incur unlimited losses. A Bull Put Spread (or Bull Put Credit Spread) strategy is a Bullish strategy to be used when you're expecting the price of the underlying instrument to mildly rise or be less volatile. The strategy involves buying a Put Option and selling a Put Option at different strike prices. The risk and reward for this strategy is limited. A Bull Put Strategy involves Buy OTM Put Option and Sell ITM Put Option. For example, If you are of the view that the price of Reliance Shares will moderately gain or drop its volatility in near future. If Reliance is currently trading at Rs 600 then you will buy an OTM Put Option at Rs 700 and a sell an ITM Put Option at Rs 550. You will make a profit when, at expiry, Reliance closes at Rs 700 level and incur losse... Read More
Market View Bullish Bullish
Strategy Level Beginners Advance
Options Type Put Put
Number of Positions 1 2
Risk Profile Unlimited Limited
Reward Profile Limited Limited
Breakeven Point Strike Price - Premium Strike price of short put - net premium paid

When and how to use Short Put and Bull Put Spread?

  Short Put Bull Put Spread
When to use?

Short Put works well when you're Bullish that the price of the underlying will not fall beyond a certain level.

This strategy works well when you're of the view that the price of a particular underlying will rise, move sideways, or marginally fall.

Market View Bullish

When you are expecting the price or volatility of the underlying to increase marginally.

Bullish
When you are expecting a moderate rise in the price of the underlying or less volatility.
Action
  • Sell Put Option

A short put strategy involves selling a Put Option only. So if you see that the shares of a Company A will not move below a 1000 then you sell the Put Option of that stock at 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this deal. However, if the price of the underlying moves below 1000 than you will incur losses.

  • Buy OTM Put Option
  • Sell ITM Put Option

A Bull Put Strategy involves Buy OTM Put Option + Sell ITM Put Option.

For example, If you are of the view that the price of Reliance Shares will moderately gain or drop its volatility in near future. If Reliance is currently trading at 600 then you will buy a OTM PUT OPTION at 700 and a sell a ITM PUT OPTION at 550. You will make a profit when at expiry Reliance closes at 700 level and incur losses if the prices fall down below the current price.

Breakeven Point Strike Price - Premium
Strike price of short put - net premium paid

Compare Risks and Rewards (Short Put Vs Bull Put Spread)

  Short Put Bull Put Spread
Risks Unlimited

There is no limit to losses incurred in the trade. The risk is when the price of the underlying falls, and the Put is exercised. You are then obliged to buy the underlying at the strike price.

Limited

Maximum loss occurs when the stock price moves below the lower strike price on expiration date.

Max Loss = (Strike Price Put 1 - Strike Price of Put 2) - Net Premium Received

Max Loss Occurs When Price of Underlying <= Strike Price of Long Put

Rewards Limited

The profit is limited to premium received in your account when you sell the Put Option.

Limited

Maximum profit happens when the price of the underlying moves above the strike price of Short Put on expiration date.

Max Profit = Net Premium Received

Maximum Profit Scenario

Underlying doesn't go down and options remain exercised.

Both options unexercised

Maximum Loss Scenario

Underlying goes down and options remain exercised.

Both options exercised

Pros & Cons or Short Put and Bull Put Spread

  Short Put Bull Put Spread
Advantages

It allows you benefit from time decay. And earn income in a rising or range bound market scenario.

Allows you to benefit from time decay in profit situations. Helps you profit from 3 scenarios: rise, sideway movements and marginal fall of the underlying.

Disadvantage

It is a high risk strategy and may cause huge losses if the price of the underlying falls steeply.

Limited profit. Time decay may go against you in loss situations.

Simillar Strategies

Bull Put Spread, Covered Call, Short Straddle

Bull Call Spread, Bear Put Spread, Collar







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