Bull Put Spread

Bull put spreads profit from time decay, which means you don't need the stock to move in your favor - just staying above breakeven is enough. You also get paid upfront (credit) instead of paying (debit). The trade-off is capped profit and the need for margin.

If the stock drops below your short strike at expiration, both puts will be in-the-money. Your maximum loss is the spread width minus the credit received. For example, a A$5 wide spread with A$1.50 credit has max loss of A$3.50 per share (A$350 per contract).

Yes, Australian equity options are American-style and can be assigned anytime. However, early assignment is rare unless your short put is deep in-the-money or near ex-dividend. If assigned, you'll buy 100 shares at the strike price, but your long put provides protection.

Margin requirement is typically the spread width minus the credit received. For a A$5 wide spread with A$1.50 credit, margin is approximately A$3.50 × 100 = A$350 per contract. Requirements vary by broker, so check with yours.

Best practice is to close at 50% of max profit. If you received A$1.50 credit, consider closing when you can buy back the spread for A$0.75 or less. This locks in profits and frees capital for new opportunities without waiting for expiration.

Use bull put spreads when IV is elevated (above 30-50%) because you're selling expensive premium. Use bull call spreads when IV is low because you're buying cheap premium. Bull put spreads also benefit from time decay, while bull call spreads need the stock to move.

Most traders sell puts at 0.25-0.35 delta for optimal risk/reward. This gives approximately 65-75% probability of profit. More aggressive traders might sell 0.40 delta (more premium, higher risk), while conservative traders sell 0.20 delta (less premium, lower risk).

If the underlying drops to your short strike, you have several options: 1) Close for a manageable loss before max loss, 2) Roll down and out to lower strikes and later expiration for additional credit, 3) Convert to iron condor by adding a call spread. Never let a tested spread expire - manage it.

This range balances theta decay (which accelerates as expiration approaches) with gamma risk (which becomes dangerous in the final weeks). Under 21 DTE, gamma risk makes tested spreads very dangerous. Over 45 DTE, theta decay is too slow to be efficient.

It depends on your strategy. Pre-earnings IV is elevated, making premiums rich. However, earnings can cause large gaps that blow through your strikes. If you sell pre-earnings, use wider spreads, smaller position sizes, and accept the binary risk. Many traders wait until after earnings for cleaner setups.

Diversify across 5-10 uncorrelated underlyings, maintain 30-45 DTE rolling schedule, size each position at 1-2% max risk, close at 50% profit, and manage losers at 200% of credit. Target sectors with different drivers (banks, miners, healthcare, retail). Track aggregate portfolio theta, delta, and vega. Rebalance monthly.

A jade lizard adds a naked short call to a bull put spread, creating a position with no upside risk if the call strike is at or above the put spread break-even. This collects additional premium without adding upside risk, but requires higher margin and has unlimited risk below the put spread.

Roll when the underlying reaches your short strike, not after it's deep ITM. Roll down 1-2 strikes and out 2-4 weeks. Only roll if you can collect net credit. Calculate new breakeven - if it's above strong resistance, don't roll. Maximum rolls: 2-3. If still losing after 3 rolls, close and accept the loss.

Enter when near-term A-VIX is elevated relative to longer-term (backwardation). This indicates fear premium in near-term options that will decay rapidly. Avoid entering when term structure is in steep contango (far months much higher than near) as this suggests expectations of future volatility increase.

Key warning signs: Win rate drops below 60%, profit factor falls below 1.2, max drawdown exceeds 20%, average win becomes smaller than average loss multiplied by loss rate. Review: entry IV thresholds, delta selection, DTE range, and position sizing. Backtest parameter changes on recent data before implementing.