A Bull Put spread is a slightly complex type of vertical spread that involves the buying 1 put and simultaneously selling 1 put with the same expiration. It is entered because the investor thinks the market will go up slight to moderately bullishness in the short to near-term. It is called a credit put spread because a credit is received after the trade is put on and you hope to keep the entire credit at expiration. The short put generates income and the long put helps offset assignment risk. The credit put spread strategy limits both risk and reward potential. The advantage of this spread, it can helps reduce risk more by capping the loss with the use of the long put when a forecast is wrong and the stock ends up declining.
Summary: The Bull Put Spread is when the investor simultaneously shorts 1 put and buys 1 lower strike price put where both options expire at the same time. This strategy limits the risk and reward potential and is designed to best work best in a steady to slowly rising, moderately bullish market.
