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Bull Put Spread Strategy: How It Works in Options Trading

22 Jan, 2026

5 mins read

Options traders often look for strategies that generate steady income with controlled risk. One such approach is the Bull Put Spread, a popular credit strategy used in moderately bullish market conditions. Instead of betting on a sharp price rise, this strategy benefits when the underlying asset stays above a defined level.

Understanding how a Bull Put Spread works helps traders manage downside risk while earning limited but predictable returns.

What Is a Bull Put Spread?

A Bull Put Spread is an options strategy that involves selling a put option at a higher strike price and buying another put option at a lower strike price with the same expiry date.

The strategy generates a net credit at entry, which represents the maximum profit. Traders use it when they expect the underlying price to remain stable or rise moderately before expiry.

In simple terms, it is a defined-risk alternative to naked put selling and is widely used in index and stock options.

How Does a Bull Put Spread Strategy Work?

The bull put spread strategy works by taking advantage of time decay and stable price behaviour.

When a trader sells a higher-strike put, they collect premium but take on downside risk. To limit that risk, they simultaneously buy a lower-strike put. This purchased option caps the potential loss.

If the underlying price stays above the sold strike at expiry, both options expire worthless, and the trader keeps the net premium received. Even if the price falls, losses remain limited due to the protective long put.

When to Use a Bull Put Spread?

Knowing when to use bull put spread strategies is crucial for consistent results.

This strategy is best suited for:

Moderately bullish market outlook
Sideways markets with strong support levels
Low to moderate volatility environments
Situations where sharp upward movement is unlikely

Traders often deploy it after market pullbacks when they expect prices to stabilise rather than rally aggressively.

Bull Put Spread Example (Step-by-Step)

Consider a stock trading at ₹1,000.

A trader:

Sells a 980 put for ₹25
Buys a 940 put for ₹10

Net credit received = ₹15 per share

If the stock stays above ₹980 at expiry, both options expire worthless, and the trader keeps ₹15.

If the stock falls below ₹940, the loss is limited to the strike difference minus the premium received.

This example of bull put spread shows how risk remains capped while allowing limited profit.

Bull Put Spread Payoff Structure

The payoff structure of a Bull Put Spread is clearly defined.

Maximum profit occurs when the underlying price stays above the higher strike
Maximum loss occurs when the price falls below the lower strike
Breakeven point equals the sold strike minus the net premium received

This clarity makes the strategy suitable for traders who prefer predictable outcomes rather than open-ended exposure.

Bull Put Spread Payoff Table

Scenario	Outcome
Price above sold put	Maximum profit
Price between strikes	Partial profit or loss
Price below bought put	Maximum loss
High volatility spike	Limited impact due to hedge

The payoff table highlights how controlled the risk remains compared to unhedged strategies.

Advantages of Bull Put Spread Strategy

One key advantage of the bull put spread strategy is defined risk. Unlike naked put selling, losses do not escalate beyond a fixed amount.

Other benefits include:

Generates income through upfront premium
Works well in non-trending markets
Lower margin requirement compared to naked options
Time decay works in the trader’s favour

These features make it a preferred choice for income-oriented options traders.

Risks and Limitations of Bull Put Spread

Despite its advantages, the strategy is not risk-free.

Sharp market declines can lead to maximum loss. Sudden volatility expansion may also reduce profitability before expiry.

Another limitation is capped profit. Even if the market rallies sharply, gains remain limited to the initial credit.

Execution discipline and correct strike selection are essential to manage these risks effectively.

Bull Put Spread vs Naked Put Selling

Both strategies express a bullish view, but risk profiles differ significantly.

Naked put selling offers higher premium income but exposes traders to substantial downside risk. Margin requirements are also higher.

A Bull Put Spread sacrifices some premium to gain protection. Losses are capped, and capital efficiency improves.

For most retail traders, spreads offer a more sustainable approach.

Bull Put Spread vs Bull Call Spread

A Bull Call Spread requires upfront debit and benefits from price appreciation. It depends on upward movement for profitability.

A Bull Put Spread, on the other hand, earns profit through stability and time decay. It does not require a strong rally.

Traders choose between the two based on market conditions, volatility, and capital preferences.

Is Bull Put Spread Suitable for Beginners?

Beginners can use this strategy once they understand basic options concepts such as puts, strikes, and expiry.

Its limited risk and defined payoff make it easier to manage than naked options. However, beginners should practice with small position sizes and avoid high-volatility environments.

Paper trading and proper risk management are strongly recommended before deploying real capital.

Conclusion

A Bull Put Spread is a practical options strategy designed for moderately bullish or range-bound markets. By combining premium income with controlled risk, it offers a balanced approach to options trading.

While profits remain capped, the strategy rewards patience, discipline, and correct market assessment. When used thoughtfully, it can become a consistent income tool within a broader trading plan.