Bull Put Spread

The buyer of your put is paying for insurance against the stock dropping. They're willing to pay premium for the right to sell stock at your strike price. You're acting like an insurance company - collecting premium in exchange for taking on the risk of the stock falling.

If assigned, you must buy 100 shares at the short strike price. However, your long put limits your risk - you can immediately exercise it to sell shares at the long strike. Net result: you lose the spread width minus your credit, which equals your calculated max loss. It's not worse than expected.

No, you don't need to own any stock. The long put provides protection for your short put. You just need the margin requirement (spread width minus credit) in your account to hold the position.

As a credit spread seller, you profit when the spread LOSES value. You sold for $3.00 - if you can buy it back for $1.50, you profit $1.50. As time passes and the stock stays above your short strike, the spread naturally loses value due to theta decay.

No, your profit is capped at the credit received. If the stock goes from $580 to $650, you still only keep the $300 credit - no more. This is the trade-off for having a high probability of profit. You sacrifice upside for consistency.

It can be profitable because IV is elevated, but gap risk is significant. If you do, use smaller position size, wider spreads, and be prepared for the stock to move through your strikes. Many traders prefer to wait until after earnings when IV has crushed.

Check IV Rank. Above 50%: Bull Put Spread (sell expensive premium). Below 30%: Bull Call Spread (buy cheap options). Between 30-50%: Either can work, consider other factors like trend strength and support levels.

Naked puts have theoretically unlimited risk (stock can go to zero) and require much more margin. Bull Put Spreads cap your risk to the spread width minus credit. For most retail traders, defined risk is more appropriate than unlimited risk.

Roll when: 1) Stock is approaching but hasn't broken your short strike, 2) You're still bullish on the underlying, 3) You can roll for a credit or small debit. Don't roll: If support is clearly broken, if you've already rolled twice, or if rolling requires a significant debit.

They're often the same for credit spreads. Margin = Spread Width - Credit. Max Loss = Same calculation. For a $10 spread with $3 credit, both are $700. However, some brokerages may have different margin policies - always verify.

Have a plan before it happens: 1) Predefined max portfolio loss triggers closure of all positions. 2) Consider portfolio hedges (long puts on SPY). 3) Don't panic-sell at worst prices - use limits. 4) Accept that occasional large drawdowns happen with credit spreads. 5) Don't double down trying to recover.

High correlation means all positions move together. If you have 5 tech stock Bull Put Spreads and tech sells off, all 5 lose. Diversify across sectors, consider adding uncorrelated assets (bonds, gold), and limit exposure to any single sector to 30% of portfolio risk.

During market stress when skew is expanding, your short puts are losing value faster than your long puts - bad for you. Also, after a major selloff, skew is elevated but may be appropriate given actual crash risk. Skew being high doesn't automatically mean it's overpriced.

Target a specific daily theta for your portfolio (e.g., 0.1-0.2% of portfolio value). Size positions so aggregate theta hits target. This creates predictable income expectations. Example: $100K portfolio, 0.15% daily target = $150/day theta = requires ~10-15 $10-wide spreads depending on theta per spread.

30-45 DTE entry is optimal. Theta accelerates after 45 DTE but gamma is manageable. Exit by 14-21 DTE (definitely by 7-10 DTE) when gamma starts dominating. The middle ground (30-14 DTE) is where you collect most theta with acceptable gamma. Front-week only for very experienced traders.