Bull Put Spread

A bull put spread, also called a put credit spread, sells a put and purchases another put at a lower strike on the same underlying. Equal quantities, matching contract sizes, and a common expiration create a vertical credit spread with finite maximum profit and loss. The higher-strike put receives more premium than the lower-strike protection costs. Below both strikes, the purchased put offsets further growth in the short obligation.

The position has a neutral-to-bullish expiration profile. It earns its full credit at or above the short strike, while the lower put limits the loss after a sufficiently large decline. That payoff protection is separate from the funds needed if assignment creates a share purchase.

Construction and example

A hypothetical example uses SPY at $750 and puts with 45 days remaining. Selling one $725 put for $6.50 per share and purchasing one $700 put for $2 produces a $4.50 per-share credit. Standard 100-share contracts make the opening receipt $450. The protective put uses part of the premium received to establish a lower sale price for shares acquired through assignment.

Expiration payoff

At $725 or above at expiration, both puts have zero payoff and the maximum profit is $450. Between $725 and $700, only the short put has intrinsic value. Each $1 decline adds $100 to its obligation, progressively using the opening credit.

The spread breaks even at $720.50, where the short put’s $4.50 per-share payoff equals the credit. At $720, its payoff is $5 per share, or $500, while the purchased put has no intrinsic value. The $450 credit leaves a $50 loss.

At and below $700, the lower put offsets further increases in the short put’s payoff. A purchase at $725 paired with a sale at $700 has a $25 per-share disadvantage before premiums. The $4.50 credit reduces that amount to a maximum loss of $20.50 per share, or $2,050 for one spread.

Moving the protective strike further below the short strike generally lowers its premium and increases the opening credit. It also enlarges the purchase-to-sale gap and usually increases the loss limit. The cheaper protection must therefore be considered together with the wider exposure it leaves between the strikes.

Probability of profit and expected profit

A high probability of profit does not necessarily mean a positive expected profit. Probability of profit measures the chance of positive P/L; expected profit also accounts for the size of gains and losses. The expected value is the sum of each possible result multiplied by its probability.

The table compares two invented probability distributions for the original $725/$700 spread. Each allows only the three expiration prices shown. These are teaching assumptions, not market estimates, forecasts or probabilities produced by Options Calculator. P/L includes the opening credit and excludes costs.

SPY price at expiration	Spread P/L	Probability under A	Probability under B
$735	+$450	80%	80%
$710	-$1,050	10%	0%
$695	-$2,050	10%	20%

Both distributions give an 80% probability of positive P/L, but their probability-weighted dollar results differ:

E_A[\text{P/L}]=0.80(450)+0.10(-1{,}050)+0.10(-2{,}050)=+\$50

E_B[\text{P/L}]=0.80(450)+0.00(-1{,}050)+0.20(-2{,}050)=-\$50

A splits the 20% losing probability between a smaller loss and the maximum loss; B assigns all of it to the maximum loss. The chance of winning stays the same, yet the larger probability-weighted losses turn the expected profit negative. Neither average is an individual outcome in the table.

Profit also has a different boundary from the short put’s moneyness. The $725 put is out of the money above $725 and at the money at $725; its intrinsic value is zero at $725 or higher. The spread profits above $720.50 before costs. At $723, the short put is in the money, yet the spread earns $250.

Delta measures local option-price sensitivity to changes in the underlying price, with other inputs fixed. OIC’s Delta guide notes that some traders interpret it as a guide to one option finishing in the money. That does not make a single-leg delta a calibrated real-world probability of spread profit or turn one minus its absolute value into a guaranteed win rate.

Options Calculator supplies payoff calculations and model sensitivities, not an independent probability or expected-profit estimate. Expected P/L requires additional assumptions about outcome probabilities. The figures above are dollar P/L rather than percentage returns on capital; see options profit versus return.

Two narrow spreads versus one wider spread

Two $5-wide spreads and one $10-wide spread can have equal maximum profit and maximum expiration loss without having the same payoff between the strikes. Consider two alternative SPY positions, separate from the graph example above. Both use the same expiration and standard 100-share contracts. Premiums are illustrative, not live quotes; results include the opening credit and exclude trading costs, financing charges and taxes.

For two $5-wide spreads, sell two $725 puts at $6.50 per share and buy two $720 puts at $5.50 per share. The $1 net credit per share per spread gives a $200 total credit and maximum profit. Maximum expiration loss is $800, calculated as $2\times100\times(5-1)$ . Break-even is $724.

For one $10-wide spread, sell one $725 put at $6.50 per share and buy one $715 put at $4.50 per share. Its $2 net credit per share also gives a $200 total credit and maximum profit. Maximum expiration loss is $800, calculated as $1\times100\times(10-2)$ . Break-even is $723.

SPY price at expiration	Two $5-wide spreads: total P/L	One $10-wide spread: total P/L
$725 or above	+$200	+$200
$724	$0	+$100
$723	-$200	$0
$722	-$400	-$100
$720	-$800	-$300
$717	-$800	-$600
$715 or below	-$800	-$800

Between $720 and $725, each $1 decline reduces the two-spread result by $200, versus $100 for the single spread. At $720, the narrower pair has reached its $800 loss limit; the wider spread’s loss continues growing until $715. Matching the extremes does not match exposure in the middle. The equal maximum losses also depend on equal total credits, not just quantity times width; these constructed premiums do not establish that wider spreads are always preferable.

The sections below return to the original $725/$700 graph example.

Value before expiration

Closing the spread buys back the $725 put and sells the $700 put. A net closing debit below the $4.50 per-share opening credit realizes a profit; a larger debit realizes a loss. Both option markets contribute to that net price.

If SPY remains above both strikes as expiration approaches, both put premiums converge toward zero and the closing cost generally falls with other inputs unchanged. A decline toward $725 increases the short put’s value before the lower put provides a comparable offset. If SPY falls below both strikes and stays there, the spread’s obligation converges toward the $25 expiration difference instead.

The net effects of time and implied volatility depend on the underlying’s position relative to both strikes. A change in downside IV can affect the two puts differently, and their sensitivities evolve as SPY moves. The strategy’s credit classification does not imply that time or lower volatility must improve its market value at every underlying price.

Exercise, assignment, and execution

SPY puts permit early exercise. Assignment of the $725 put purchases 100 shares for $72,500. While the $700 put remains open, it preserves a right to sell those shares at $700. The downside protection can therefore survive early assignment, but the account now holds shares and a put and must fund that combination.

Exercising the long put sells the shares at its strike. Selling the shares and the put separately can instead recover remaining option time value when suitable market prices are available. The purchased put requires its own transaction or exercise instruction; it is not automatically used because the higher put has been assigned.

At expiration between the strikes, assignment of the short put can leave shares while the lower put expires unused. Any shares retained afterward are exposed to further declines beyond the original option horizon. Near a strike, independent exercise instructions can also create uncertainty about the final share position.

A complex closing order can execute the option legs at a net price and maintain their one-to-one ratio for each filled package. It may leave part of the position open and does not combine the separate exercise decisions. A spread’s maximum payoff loss is therefore not a complete description of its execution or account requirements.

Payoff formulas

Let $K_H$ be the higher short-put strike, $K_L$ the lower purchased strike, $c$ the net credit per share, and $S_T$ the final underlying price. The result subtracts the short put payoff and adds the protective put payoff. For $q$ complete spreads with multiplier $M$ :

\text{P/L}=qM\bigl[c-\max(K_H-S_T,0)+\max(K_L-S_T,0)\bigr]

For positive strikes and a positive credit smaller than their width:

\text{Maximum profit}=qMc

\text{Maximum loss}=qM(K_H-K_L-c)

\text{Break-even}=K_H-c

The break-even lies between the strikes, where the short put alone has enough intrinsic value to use the credit. The maximum loss occurs at or below the lower strike, where the payoff difference equals the width. Scaling complete spreads changes the dollar amounts without changing these boundaries.