Bull Put Spread | what is Bull Put Spread ? | How we trade Bull Put Spread ? | Bull Put Spread Option Strategies

Bull Put Spread Option Strategies

(29 Hedging Strategies By vinay Bhandari)

Bull Put Spread is a strategy that must be devised when the investor is moderately bullish on the market direction going up in the short-term.

A Bull Put Spread is formed by buying an “Out-of-the-Money Put Option” (lower strike) and selling an “In- the-Money Put Option” (higher strike). Both Put options must have the same underlying security and expiration month.

The concept is to protect the downside of a Put sold by buying a lower strike Put, which acts as insurance for the Put sold.

This strategy is equivalent to the Bull Call but is done to earn a net credit (premium) and collect an income.

E.g.. Nifty is currently trading @ 15000. Investor is expecting the markets to rise from these levels. By selling a Put Option of Nifty having Strike 15100 @ premium 150 and buying a Put Option of Nifty having Strike 14900@ premium 50, the investor can get an inflow of the premium of 100 and benefit if Nifty stays above 15000 .

In the above chart, the breakeven happens the moment Nifty crosses 15000 and risk is limited to a maximum of 7500 (calculated as Lot size * Premium received). Payoff Schedule for Bull Call/Put Spread is the same. Only difference is that in Bull Put Spread there is an inflow of premium.

for Payoff Charts Click here>>>

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Originally published at https://www.hedgingstrategies.in.