Contents

Bull PUT Spread

Bull PUT spread is a bullish options strategy. It involves selling a higher strike PUT and buying a lower strike PUT thus creating a net credit position. Bull PUT spreads can be used to generate a consistent income.

When you are trading Nifty options, this strategy can help you capture 3 to 5 points overnight. You can also use it in combo with a Bear CALL spread overnight to capture points on both sides, if the market stays range-bound.

Trade Set-Up

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Buy lower strike PUT

Naked Put-Finvezto

Sell higher strike PUT

short put-Finvezto

Bull PUT Spread

bull spread-Finvezto

Entry Checklist

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Market Outlook
  • Bullish to Neutral Outlook
  • Price should be trading above a support zone
  • Volatility
  • This spread can be used when the volatility is low
  • The difference between premiums is good when volatility is low
  • Open Interest
  • Build up of PUTs near the support zone is ideal
  • PUTs sold should be more than the number of CALLs sold
  • Strike Price
  • Sell at a strike price below the identified support zone
  • Positional or Intraday?
  • Holding positions overnight is recommended as you can capture overnight decay of 5-10 points in Nifty options
  • It is a consistent income strategy
  • Intraday returns are significantly lower compared to straddle or strangle.
  • Risk Profile

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    Risk [Loss]
  • Maximum Risk is limited to the difference in strike prices minus the net credit received
  • Reward [Profit]
  • Maximum profit is limited to the net credit received
  • Break Even Point
  • The Strike Price of the PUT option sold at higher strike minus the net credit received.
  • Options Greeks Impact

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    Time Decay Impact [Theta]
  • Time decay is helpful for this position
  • Volatility impact [Vega]
  • When the price increases as predicted and if volatility also falls, then premiums of both PUTs will decay quickly and the position will be profitable
  • As long as price remains above the higher strike PUT irrespective of the volatility, you will profit from the position.
  • Price Impact [Delta]
  • Delta accelerates when price is between the 2 strikes. SO during expiry if price is closer to the higher strike, you might want to manage the position with a tight stop loss.
  • As long as price remains above the support level identified and above the strike price of the PUT sold, you will profit
  • Trade Management & Exit

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    Rolling & Adjustments
  • If you have received more than 50% of your net credit, then close the position and sell another spread to receive higher net credit.
  • Stop Loss
  • Stop Loss should be set in such a way that Risk is limited to 1-2% of your entire capital
  • Exit Conditions
  • Exit when price breaks below the support zone identified
  • Exit when your loss is 1-2% of your capital
  • Exit when you receive more than 50% of the net credit
  • A Word of Caution

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    • This is a consistent income strategy. With a capital of about Rs 25000 you can make around Rs 375 to Rs 750 (5 to 10 points in Nifty Options) in weekly options overnight depending on the day of the week. Loss is limited and this gives you peace of mind.
    • Trade only on Indices as they are less volatile.