Risk control tactic: bull put credit spread

As the title implies, trading credit spreads makes it possible for you to lower the risk in trading options. At the same time, you may assuming a very advantageous stance in the market.

One of the spread tactics is called bull put credit spread; this one uses a bullish bias, and it is made with put options. This is a bullish stance wherein you only want the stock price to remain at the top of the upper or higher strike price of the spread. As a summary, this kind of strategy is able to give you a profit by creating a net credit, which is formed in the difference of the sold put price as well as the bought put price. You, as an investor, may be able to keep the net credit or the difference in the premiums while the stock is going up.

A credit spread can give you a good probability of earning profit, since the profit will be derived as long as the market moves either flat or up.

This strategy includes selling or writing an option and then purchasing an option. You do this in different strike prices while you are in the same underlying stock. Selling an option will give you a credit that will go directly to your trading account. The option you purchase acts as the risk limiting factor.

Take note that in a credit spread trade, you are collecting additional money on your stance that you write. For you to get maximum possible profits, both options that are involved in the spread must expire ‘out-of-the-money’, or worthless.

Bull put credit spread is executed by doing the following:

• Sell a put with a pre-determined price.
• Purchase a put with one or more strikes under the above amount in the same month. This is your downside safety.
• You should know some of the basics like the margins. In addition to that, knowing also the maximum risk, maximum profit, net credit and break even points.
• You will gain profit if the stock prices go up.



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.