Bull Put Spread
Bull Put Spread Strategy
The Bull Put Spread is a bullish strategy that allows traders to profit when the asset’s price rises or even stays at the same level. It is a cost-efficient way to position for moderate upside while limiting potential downside.
This strategy offers low cost and decent profits if the price holds steady or increases. Unlike some bullish positions, the Bull Put Spread can start generating profit immediately, without waiting for the market to move upward.
How the Bull Put Spread Works
The Bull Put Spread combines two positions:
Sell one ATM Put Option (strike price = current market price).
Buy one OTM Put Option (strike price = lower than the current market price).
The premium received from selling the ATM put exceeds the premium paid for the OTM put. As a result, the trader starts with an initial net credit.
Cost: Low (since you collect premium).
Profit: Capped at the net premium received.
Risk: Limited to the difference between strike prices minus the net premium.
Buying one Bull Put Spread is equal to selling an ATM Put while simultaneously buying an OTM Put with a lower strike price.
Nexo Options typically offers two versions:
Narrow Range: Smaller difference between strikes = lower risk and lower reward.
Wide Range: Larger difference between strikes = higher risk and higher reward.
Break-Even Price
The break-even price is slightly below the ATM strike. This means the strategy is profitable as long as the asset’s price stays above this level at expiry.
Example with ETH
Suppose ETH is trading at $4,200.
Sell: 1 ATM Put Option at strike = $4,200.
Buy: 1 OTM Put Option at strike = $3,800.
Scenario 1: ETH stays at $4,200 or rises
Both puts expire worthless.
Trader keeps the premium collected.
Net result: Maximum profit achieved.
Scenario 2: ETH falls moderately to $4,000
The ATM put incurs some loss.
The OTM put offsets part of the loss.
Net result: Partial loss, but still limited.
Scenario 3: ETH drops sharply below $3,800
Both puts are in-the-money.
Loss is capped at the difference between the strike prices minus the premium received.
Net result: Maximum loss limited.
Why Use the Bull Put Spread on Nexo Options?
Immediate Profit Zone: Starts with net credit, so you’re in profit from day one if price doesn’t drop.
Defined Risk and Reward: Both potential loss and profit are capped.
Efficient for Sideways or Bullish Markets: Works well if the price rises or remains stable.
Choice of Ranges: Narrow vs. Wide lets traders adjust the risk/reward balance.
Important Notes
The Bull Put Spread is an inverse strategy, meaning it involves selling options.
Because of this, it cannot be exercised before expiry; settlement occurs automatically at expiration.
The Bull Put Spread is ideal for traders with a mildly bullish or neutral outlook, seeking steady returns with controlled risk exposure.
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