Bull Put Spread
The last of the four vertical spreads is a bull put spread. A bull put spread is
a short put with one strike and a long put with a lower strike. Both puts are
on the same underlying and in the same expiration cycle. A bull put spread
is a credit spread because the more expensive option is being sold, resulting
in a net credit when the position is established. Using the same options as in
the bear put example:
With ExxonMobil at $80.55, the June 80 puts are sold for 1.75 and the
June 75 puts are bought at 0.45. The trade is done for a credit of 1.30.
Exhibit 9.10 shows the payout of this spread if it is held until expiration.
EXHIBIT 9.10 ExxonMobil bull put spread.
The sale of this spread generates a 1.30 net credit, which is represented by
the maximum profit to the right of the 80 strike. With ExxonMobil above
$80 per share at expiration, both options expire OTM and the premium is
all profit. Between the two strike prices, the 80 put expires in the money. If
the ITM put is still held at expiration, it will be assigned. Upon assignment,