   8: The Bull Put Spread Strategy Strategy: Bull put spread Opening the Trade: 1. "Buy to open" a put option on company X and 2. "Sell to open" a put option on company X at a strike higher than the long put Closing the Trade: 1. "Buy to close" a put option with the same strike and expiration as your short put AND "sell to close" a put option with the same strike and expiration as your long put 2. Let both options expire worthless 3. You get exercised on the short one AND you let the long one expire worthless 4. You get exercised on the short one AND you exercise the long one Summary: This is called a Bull Put Spread, because you are bullish on the underlying stock (you think it will go up in price), you use two put options to open the trade (one you buy and one you sell), and its a spread (the put you buy protects the put you sell). In fact, this is just like a covered call, you're using two put options instead of stock and a call option. Your profits are limited on the upside, and your losses are limited on the downside! This is a common type of spread. Margin may be required to open a bull put spread. Maximum Profit: The premium you receive upon opening the spread. Maximum Loss: The difference between the two strike prices minus premium received. Breakeven: You lose money on this trade if the stock price is below the upper strike price minus the premium received.  Figure 1: 55/60 Bull Put Spread on XYZ Example:
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