Bull Put Spread

A Bull Put Spread involves selling a put option at a higher strike price and buying a put option at a lower strike price. It profits from moderate price increases or stability.

• Ideal for moderately bullish conditions, where the price is expected to stay above the higher strike price.
• Selling a slightly OTM put and buying a farther OTM put caps both risk and reward.
• Risk is limited to the difference in strike prices minus the net premium received.

Example:

• NIFTY trading at 18,000.
• Sell 17,800 Put at ₹150 and buy 17,600 Put at ₹50 (lot size = 50).
• Outcome:
  1. If NIFTY stays above 17,800 at expiry:
     • Both options expire worthless.
     • Net profit = ₹5,000.
  2. If NIFTY falls to 17,700 at expiry:
     • Loss on sold put = ₹100 × 50 = ₹5,000.
     • Gain on bought put = ₹0.
     • Net loss = ₹5,000 − ₹5,000 = ₹0.
  3. If NIFTY falls to 17,500 at expiry:
     • Loss on sold put = ₹300 × 50 = ₹15,000.
     • Gain on bought put = ₹100 × 50 = ₹5,000.
     • Net loss = ₹15,000 − ₹5,000 − ₹5,000 = ₹5,000 (limited loss).