Bull Put Spread Options Strategy: Defined-Risk Bullish Trade

Level: Intermediate
Bull Put Spread Options Strategy: Defined-Risk Bullish Trade

The Bull Put Spread is a moderately bullish options strategy where you sell a Put at a higher strike and buy another Put at a lower strike. It profits when the market stays above the short Put strike, with risk capped by the protective long Put.

Bull Put Spread Options Strategy: Defined-Risk Bullish Trade

The Bull Put Spread is a credit spread strategy used when traders have a moderately bullish outlook on the market. It involves selling a Put option at a higher strike and buying another Put option at a lower strike (same expiry). This creates a defined-risk trade that earns income if the underlying stays above the short Put strike.

  • Max Profit: Net premium received.
  • Max Loss: Difference in strikes – premium received.
  • Market View: Moderately bullish to range-bound.
Think of a Bull Put Spread as earning rent by selling insurance against a market fall — but you buy reinsurance (lower strike Put) to cap your losses.

When to Use a Bull Put Spread

  • You expect the market to stay above a certain support level.
  • You want income from premium decay with limited risk.
  • Best used when volatility is high and expected to drop.

Setup Checklist

  • Underlying: NIFTY, BankNIFTY, or liquid stocks.
  • Strike Selection: Sell ATM/OTM Put, Buy further OTM Put.
  • Expiry: Near-term for faster time decay benefits.
  • Risk: Limited due to hedge.

Entry Rules

  1. Sell 1 Put at a higher strike (closer to spot).
  2. Buy 1 Put at a lower strike (further OTM).
  3. Net credit received = maximum profit.

Example: NIFTY Bull Put Spread

Assume NIFTY is at 20,000 and expiry is 26th September 2025:

  • Sell 19,800 PE @ ₹110
  • Buy 19,600 PE @ ₹50

Net Premium Received: ₹60 × 75 = ₹4,500 (Max Profit)

Max Loss: (19,800 – 19,600 – 60) × 75 = –₹10,500

Breakeven Point:

  • 19,800 – 60 = 19,740

Payoff at Expiry:

  • If NIFTY closes at or above 19,800 → Max Profit = ₹4,500.
  • If NIFTY closes at 19,740 → No Profit, No Loss.
  • If NIFTY closes at or below 19,600 → Max Loss = –₹10,500.
Bull Put Spread payoff chart showing capped profit and limited loss

Risk & Management

  • Max Profit: Premium received.
  • Max Loss: Difference in strikes – premium received.
  • Theta: Positive — time decay helps.
  • Vega: Negative — falling volatility helps.

Exit Rules

  • Exit if market remains stable and premiums decay (book profit).
  • Exit early if NIFTY starts falling below short strike.
  • Close before expiry if volatility unexpectedly rises.

Advantages

  • Defined risk, no unlimited losses.
  • Profits from time decay and range-bound or bullish markets.
  • Requires less margin than naked Put selling.

Disadvantages

  • Profit is capped at the premium received.
  • Risk/reward can be unfavorable if strikes are chosen poorly.
  • Still loses if market falls sharply.

Comparison: Bull Put Spread vs Naked Put

Factor Bull Put Spread Naked Put
Risk Limited Large (if underlying falls sharply)
Profit Potential Limited (credit received) Limited (premium received)
Margin Requirement Lower High
Best Use Case Moderately bullish, defined-risk play Income with higher risk tolerance
Tip: The Bull Put Spread is ideal when you want to earn premium income from stable to rising markets, while keeping risk capped. Safer than naked Put selling.

The Bull Put Spread is a go-to strategy for moderately bullish traders. It is especially popular among NIFTY and Bank NIFTY traders who want steady income with limited risk exposure.