How to Profit From Bull Put Spreads: A Complete Credit Put Spread Example Guide

Understanding the Core Mechanism

A bull put spread—commonly called a put credit spread in trading circles—represents a directionally neutral to bullish options trade where both your maximum gain and maximum loss are predetermined before you enter. This pre-defined risk structure appeals to disciplined traders seeking controlled exposure.

The strategy mirrors selling naked or cash-secured puts, with one critical difference: you simultaneously purchase a lower-strike put to cap your downside. This dual-leg structure transforms unlimited risk into a bounded trade. To execute, you first short a put at a higher strike, then immediately buy a put at a lower strike within the same order.

Anatomy of a Real Credit Put Spread Example

Let’s walk through a practical scenario. Suppose stock XYZ trades at $100 per share. You sell a $90-strike put collecting $1.00 in premium, while buying a $80-strike put for $0.50. Your net credit received: $0.50 per share.

Your profit engine here is straightforward—you’re betting the short put loses more value than the long put. If XYZ remains neutral or rises, both contracts decay, but the $90 put decays faster (since it’s more in-the-money), generating the spread’s gain.

Scenario: XYZ rises to $105

The $90 put drops from $1.00 to $0.50, yielding a $0.50 profit on that leg. The $80 put falls from $0.50 to $0.25, resulting in a $0.25 loss. Net outcome: your spread profit shrinks from $0.50 to $0.25, netting you $25 per contract (100-share multiplier applies).

The Math Behind Payoff Potential

Maximum profit equals the credit you collect upfront. In our example, that’s $50 per spread ($0.50 × 100 shares).

Maximum loss is calculated as: Strike width minus premium received. Here: $10 width (90 − 80) minus $0.50 premium = $9.50 per share, or $950 total loss.

To capture max profit, hold both options through expiration worthless—XYZ must stay above $90 at settlement. For max loss to materialize, XYZ would need to close below $80, forcing assignment on your short put and worthless expiration on your long put. If XYZ lands between strikes at say $85, you absorb losses on both legs.

Assignment Reality and Your Rights

When a short put expires in-the-money, your broker auto-assigns you—forcing a purchase of 100 shares at the strike price. The long put you hold carries no assignment risk; instead, it grants you the right to sell 100 shares at that lower strike.

Breaking down your obligations:

• Short $90 put (sold for $1.00): You’re obligated to buy 100 shares at $90, receiving $100 in premium immediately
• Long $80 put (purchased for $0.50): You hold the right to sell 100 shares at $80, having paid $50 upfront

Critical point: Assignment doesn’t erase your received premium—you keep the $100 from selling that put, while the $50 you paid for the long put transfers to its seller as settlement.

Why Risk Management Separates Winners From Blown Accounts

Bull put spreads offer high win probability—the trade profits if the stock goes up or flatlines. But markets reward this edge with an unfavorable risk-to-reward ratio, especially when selling out-of-the-money options. No free lunch exists.

The capital allocation trap: If your $10,000 account deploys entirely into credit put spreads, a max loss wipes you out completely. Smart traders reserve enough cash to absorb assignment on all sold puts. For our example, that means keeping $9,000 available—the full cost to buy 100 shares at $90—even though the spread only requires $1,000 in buying power to initiate.

The temptation to lever aggressively (“I’ll sell 10 spreads!”) evaporates after a single sharp downside move decimates leverage. Seasoned traders gradually increase position size with experience; if you’re debating whether using margin is wise, you likely haven’t internalized the risks.

Before entering any trade, visualize the worst-case scenario. What if the market gaps down 10%? Can your account survive? Paper trading with virtual funds is the proven pathway for testing your risk tolerance before deploying real capital. Your risk management plan must exist before you click buy—not after losses mount.