The Bull Put Spread - Collecting Income in a Bullish Environment
Jim Graham

The bull put spread is a useful tool for producing income. A bull put spread is a credit spread created by selling a put while simultaneously purchasing a put with the same expiration date at a lower strike price, farther out-of-the-money, on the same stock.

This strategy is best implemented in a moderately bullish market to provide high leverage over a limited range of stock prices. While the profit on this strategy can increase by as much as 1 point for each 1 point increase in the price of the underlying, the total investment is far less than that required to buy the stock. This strategy has both limited profit potential and limited downside risk, as illustrated by the risk graph below.

Bull Put Spread Example

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