Bull Put Spread

Bull put spreads allow you to profit from theta decay - you make money just from time passing. You don't need the underlying to move up; it just needs to stay above your short strike. This gives you a higher probability of profit (65-75%) compared to buying calls (typically 45-55%).

If STI is below your short strike at expiration, your loss depends on how far below. Your maximum loss is capped by the long put you purchased. For example, with a 3150/3100 spread, if STI is at 3050, your loss is the max loss (spread width minus premium received). But you can always close early to limit losses.

Yes, bull put spreads require margin because you're short an option. However, because you also own a protective put, margin is limited to the spread width minus the premium received. For a 50-point spread, margin is typically around S$175-200 per contract.

You receive the net credit immediately when you enter the trade. It appears in your account right away. However, it's not realized profit until you close the position or the options expire worthless.

A naked put has unlimited risk (you could lose up to the strike price × multiplier if the stock goes to zero). A bull put spread has defined risk because the long put you buy protects you. The trade-off is that you collect less premium with a spread, but your risk is capped.

Use bull put spread (credit) when: IV is high (sell expensive premium), you want theta decay on your side, and you're neutral to moderately bullish. Use bull call spread (debit) when: IV is low (buy cheap premium), you expect a significant move up, and you want more directional exposure.

Almost always close early. Close at 50% of max profit to lock in gains. Close by 21 DTE even if not at target. Close by 7-10 DTE regardless of P&L to avoid gamma and assignment risk. Letting spreads expire is risky - small price moves in the final days can turn winners into losers.

For standard bull put spreads, target -0.25 to -0.35 delta on your short put. This gives 65-75% probability of the option expiring OTM. More aggressive traders might sell -0.35 to -0.40 delta for more premium, while conservative traders might sell -0.15 to -0.20 for higher win rate but smaller profits.

IV crush helps bull put spreads. After earnings, IV typically drops significantly. Since you sold options, this decrease in IV causes the options to lose value faster, which is good for you. You might see your position jump to 40-60% profit immediately after earnings just from IV crush.

Consider closing. While the standard target is 50%, capturing 25% profit with 35 DTE means you've made good progress quickly. You could close and redeploy capital to a new trade. Alternatively, hold until 50% target, but set an alert to monitor. Don't get greedy - the remaining 75% of profit isn't worth 35 days of risk.

Look for contango (front month IV < back months) as the normal state for entry. Backwardation (front month IV > back months) indicates fear and elevated premiums - excellent for selling spreads but be aware of directional risk. Enter credit spreads when volatility term structure is normalizing from backwardation, as IV will continue to drop helping your position.

Limit total credit spread exposure to 20-25% of portfolio value. Within that: diversify across 4-6 underlyings, stagger expirations (don't have everything expire same week), balance bullish and bearish credit spreads. Monitor aggregate Greeks - keep portfolio theta positive but don't be too directional with delta.

Options: (1) Close at loss if thesis invalidated - capital preservation first. (2) Roll down and out - close current spread, open lower strikes in later expiration for credit. This gives time and lowers breakeven. (3) Convert to iron condor - add bear call spread at higher strikes to collect premium and reduce cost basis. Only roll/adjust if thesis is intact.

With 70% win rate and 2:1 risk/reward (risk S$200 to make S$100), you need to size so that: (Win rate × Avg win) > (Loss rate × Avg loss). With 70% wins at S$50 (50% of max) and 30% losses at S$200, expected value = (0.7 × S$50) - (0.3 × S$200) = S$35 - S$60 = -S$25. You need to either improve win rate, reduce losses with stops, or size larger wins.

Singapore bank stocks (DBS, OCBC, UOB) are 80%+ correlated. Running bull put spreads on all three during China stress means one bad event hits all positions. Solution: Use STI index for diversified exposure, limit individual stock spreads to one bank at a time, balance with uncorrelated sectors (REITs, telecoms), or hedge with bear call spreads on the index.