Bull put spreads explained

In an exchange market, you will have several means to earn profit. Most people know the basics such as in stocks trading. They will say that when the economy is at its low stages, you better rack up your stocks. Meaning, you have to buy stocks while the price is low. To earn, you have to sell those stocks at higher price and when the market and is moving up. In short, that is like planting the seeds in times of problem and then harvesting in times of abundance. That is a typical trading tactic.

Another term in the field of trading is the bull put spreads. This method is an independent trade that is known to utilize a combination of two put options; however, the whole thing or process is still under the one direction strategy. Under normal circumstances, a trader can sell a single put option and then buy another at a lower strike price. The spread comes from the strike price difference of the two puts.

How to create or make a bull put spread? Fist, you must identify the trend of the market. Then if it is bullish, sell an out of the money put while simultaneously purchasing a put option at a lower strike price for protection. The goal is for both to expire worthless.

Since this technique involves money, expect that there are risks as well as rewards in using put spreads. First, is the risk involved in put spreads; typically, the risk is limited to the difference between the sold put and the purchased put, less the maximum credit. On the other hand, the reward in this bull put spreads is somewhat limited to the initial credit, which is made when you enter the trade.



Jeff Ziegler, author of this article is also interested in Credit spread options and recommends you to please check out some Credit spread strategies if you liked reading this information.