Bull Put Spread is a strategy that must be devised when the investor is moderately bullish on the market direction going up in the short-term.
A Bull Put Spread is formed by buying an “Out-of-the-Money Put Option” (lower strike) and selling an “In-the-Money Put Option” (higher strike). Both Put options must have the same underlying security and expiration month.
The concept is to protect the downside of a Put sold by buying a lower strike Put, which acts as insurance for the Put sold.
This strategy is equivalent to the Bull Call but is done to earn a net credit (premium) and collect an income.
Investor view: Moderately bullish on the Stock/ Index.
Reward: Limited to the premium received.
Breakeven: Strike price of Short Put – premium received.