What Is a Bull Put Spread? Strategy, Payoff, Risk and Example

# What Is a Bull Put Spread?

A bull put spread is a defined-risk options strategy created by:

1.Selling a higher-strike put.

2.Buying a lower-strike put.

Both options normally have the same expiry.

The strategy generally benefits when the underlying remains above the short put strike.

NIFTY Example

Suppose NIFTY is around 24,500.

A trader creates:

•Sell 24,400 Put for ₹120

•Buy 24,200 Put for ₹50

Net credit:

₹120 − ₹50 = ₹70

For an illustrative 65-unit lot:

Maximum Profit = ₹70 × 65 = ₹4,550

Maximum Loss

Strike difference:

24,400 − 24,200 = 200 points

Maximum loss per unit:

₹200 − ₹70 = ₹130

Maximum loss:

₹130 × 65 = ₹8,450

Breakeven

Breakeven = Short Put Strike − Net Credit

= 24,400 − 70 = 24,330

At expiry:

•NIFTY ≥ 24,400 → maximum profit

•NIFTY = 24,330 → approximately breakeven before costs

•NIFTY ≤ 24,200 → maximum loss

Expiry Payoff

| NIFTY Expiry | Approx. P&L per unit |

|---:|---:|

| 24,600 | +₹70 |

| 24,400 | +₹70 |

| 24,350 | +₹20 |

| 24,330 | ₹0 |

| 24,300 | −₹30 |

| 24,200 | −₹130 |

Why Use a Bull Put Spread?

It can express a bullish-to-neutral view while collecting a net premium credit.

A trader may use it when expecting:

•Support to hold

•Sideways-to-bullish action

•NIFTY to remain above a selected level

Bull Put Spread vs Naked Put

A naked short put can have substantial downside if the underlying falls sharply.

The long lower-strike put in a bull put spread caps the maximum loss.

The trade-off is that buying protection reduces the initial premium credit.

Time Decay and Volatility

A bull put spread is generally a net short-premium position, so time decay can benefit it when the underlying remains favourable.

However, theta does not guarantee profit.

Price movement, implied volatility, gamma, liquidity and bid-ask spreads can materially affect the position before expiry.

Example of Maximum Loss

If NIFTY expires at 24,100:

•24,400 Put intrinsic value = 300

•24,200 Put intrinsic value = 100

•Net spread value = 200

•Credit received = 70

Loss:

200 − 70 = 130 points

That is the maximum loss.

Key Takeaways

•Bull put spread = sell higher-strike put + buy lower-strike put.

•It is generally bullish to neutral.

•Maximum profit is the net credit.

•Maximum loss is defined by the long put.

•Breakeven = short put strike − net credit.

•A sharp decline can produce the maximum loss.

Frequently Asked Questions

Is a bull put spread the same as a put credit spread?

The terms are commonly used interchangeably for a vertical put spread established for a net credit.

Does NIFTY have to rise?

No. It can remain flat or decline moderately and still produce a profit if it expires above breakeven.

Why buy the lower-strike put?

It limits the downside risk of the short put.

Can it be closed before expiry?

Yes, subject to market liquidity, broker conditions and applicable exchange rules.

Final Thoughts

The bull put spread is a practical way to express a bullish or support-holding view with defined risk.

Before entering, calculate maximum profit, maximum loss and breakeven.

> Disclaimer: This article is educational only and is not financial advice. Options involve substantial risk. Verify current contract specifications and lot sizes before trading.