Short Put
Sell a put option to earn premium when you expect the market to hold steady or rise. Wins often, but a sharp fall can cost far more than the premium.
Learn strategyBullish2 LegsDefined risk
Bull Put Spread
Sell a put and buy a lower strike put as protection. Keep the credit if the market holds above the sold strike, with a worst case fixed at entry.
By Team Agora Circle
Written by the Agora Circle editorial team. Educational content, explained for the Indian market. Not investment advice.
- Market outlook
- Bullish to neutral. You expect the underlying to stay above the sold strike through expiry.
- Setup
- Sell 1 put at or below the market, buy 1 put at a lower strike, same expiry.
- Max profit
- Limited to the net credit received at entry.
- Max loss
- The strike width minus the net credit. Known at entry.
- Breakeven
- Upper (sold) strike minus the net credit received.
- Implied volatility
- Falling implied volatility helps. The hedge leg mutes swings in either direction.
- Time decay
- Time decay works for you while the index holds above the sold strike.
Strategy Overview
A bull put spread, or put credit spread, sells a put for premium and buys a cheaper, lower strike put that caps the damage if the market falls hard. The net credit is the profit ceiling; the strike width minus the credit is the loss floor. Everything about the trade is known before it begins.
Like all credit spreads, it monetises a non event: the market simply not falling below the sold strike. Rallies, sideways chop, and shallow dips all deliver the full credit, which is why the structure wins frequently when strikes are placed with care below support.
It is the defined risk cousin of the naked short put, giving up part of the premium for a hard floor and far lighter margin. In crash prone markets, that floor is not a luxury; it is what lets a seller survive being wrong.
How to Set It Up
Two legs, same expiry, entered together for a net credit.
- 1Sell 1 put (PE) at or below the current market, often just beneath a support level.
- 2Buy 1 put (PE) at a lower strike in the same expiry as protection.
- 3Collect the net credit. The maximum loss is fixed at the strike width minus this credit.
Payoff Diagram and Example
Max Profit
Limited to the net credit received at entry.
Max Loss
The strike width minus the net credit. Known at entry.
Breakeven
Upper (sold) strike minus the net credit received.
Suppose NIFTY is at 25,000 after a steady climb and you expect the level to hold. You sell the 25,000 PE for 200 and buy the 24,500 PE for 90, banking a net credit of 110 points, or Rs 8,250 per lot.
If NIFTY expires at or above 25,000, both puts expire worthless and the full credit is yours. The breakeven sits at 24,890, giving the trade a 110 point cushion below the sold strike.
Below 24,890 losses build until 24,500, where the bought put freezes them at 500 minus 110: a maximum loss of 390 points, or Rs 29,250, no matter how deep the market falls beyond it.
Entering and Exiting
Enter as a single spread order with a limit on the net credit. Margin is approximately the maximum loss, which makes the return on capital far better than a naked put's.
The default exit is patience: let decay do its work, then buy the spread back for a small fraction of the credit rather than carrying gap risk into the final days for the last few points.
If the index breaks the sold strike with momentum, close or roll before the loss approaches its maximum. Credit spreads reward sellers who treat their defined loss as a budget, not a target.
Time Decay (Theta)
Above the sold strike, every passing session moves the credit closer to fully earned; the short put decays faster than the long hedge and the difference is your daily income.
That advantage weakens once the index trades between the strikes. Time stops being an ally exactly when the position needs rescuing, which is why challenged spreads should be managed rather than aged.
Implied Volatility (Vega)
The spread is net short vega. Selling after volatility spikes, when put premiums are swollen by fear, is the highest quality entry: you are paid for panic and profit as it subsides.
The bought put insulates the position from further IV expansion far better than a naked short put, keeping drawdowns and margin changes manageable during turbulence.
Common Adjustments
Roll down and out when the sold strike is threatened: buy back the current spread and sell a lower strike spread in a later expiry, aiming for a net credit on the roll.
Add a bear call spread above the market to form an iron condor when the outlook turns from bullish to range bound. The extra credit widens breakevens on both sides.
When support genuinely breaks, take the defined loss. The spread was built so that being wrong costs a known amount; spending more premium to defend a broken level usually deepens the hole.
Synthetic Equivalent
A bull put spread has the same payoff as a bull call spread at the same two strikes. It is entered for a net credit using puts rather than a net debit using calls.
It is also a short put with its large downside capped by buying a further out put, which is the defined risk version of simply selling a put.
Pros and Cons
Pros
- Profits from rising, flat, and mildly falling markets.
- Maximum loss is fixed and far smaller than a naked put's crash exposure.
- Modest margin requirement relative to the premium collected.
- Time decay and cooling volatility both work for the position.
Cons
- Profit is capped at the credit, typically smaller than the maximum loss.
- Fast crashes can run through both strikes before an orderly exit.
- Requires a high win rate to offset the occasional full loss.
- Two legs mean slightly higher costs than a single option.
Frequently Asked Questions
How is this different from selling a naked put?
The lower strike put you buy acts as built in crash insurance: losses stop at the strike width minus the credit instead of running toward a zero underlying. Margin drops accordingly. The price of that safety is the premium spent on the hedge leg.
Where should the sold strike go?
Below a support level the market has respected, or at a distance the index rarely covers within the expiry. Selling closer to the money collects more but gets tested often. A short put delta around 0.25 to 0.35 is a common anchor for systematic sellers.
What if NIFTY expires between my strikes?
The sold 25,000 put settles at intrinsic value and the 24,500 put expires worthless. Above the 24,890 breakeven you still net a profit; below it the loss grows until it caps at 390 points at or beneath 24,500.
Bull put spread or bull call spread, which should I choose?
The payoffs are near mirror images, so the choice is practical. The put version collects a credit, wins even if the market goes nowhere, and suits a view of 'will not fall'. The call version pays a debit and needs the rise to happen, suiting a view of 'will go up'. Pricing on the day often settles the question.
Why close at 80 to 90 percent of the credit instead of holding to expiry?
The remaining sliver of premium pays almost nothing per day of risk retained, and expiry weeks produce the sharpest gaps. Rebooking the capital into a fresh spread nearly always offers a better risk to reward than babysitting the old one.
Related Strategies
Bull Call Spread
Buy a call and sell a higher strike call to cut the cost of a bullish trade. Cheaper than a long call, with both risk and reward clearly defined.
Learn strategyIron Condor
Sell a put spread below the market and a call spread above it. Earn premium in a range with every outcome, good or bad, fixed at entry.
Learn strategyBear Put Spread
Buy a put and sell a lower strike put to cheapen a bearish trade. Defined cost, defined payoff, and no need for a crash to make money.
Learn strategyThis page is for education only. It is not investment advice, and nothing here is a recommendation to buy or sell any instrument. Options involve substantial risk, and option sellers can lose far more than the premium they receive. Please do your own research or consult a SEBI registered investment adviser before trading. Read our full disclaimer.