the put becomes long stock, profiting with each tick higher up to $80, or
losing with each tick lower to $75. If the 80 put is assigned, the effective
price of the long stock will be $78.70. The assignment will “hit your sheets”
as a buy at $80, but the 1.30 credit lowers the effective net cost to $78.70.
If the stock is below $75 at option expiration, both puts will be ITM. This
is the worst case scenario, because the higher-struck put was sold. At
expiration, the 80 puts would be assigned, the 75 puts exercised. That’s a
negative scalp of $5 on the resulting stock. The initial credit lessens the pain
by 1.30. The maximum possible loss with ExxonMobil below both strikes
at expiration is $3.70 per spread.
The spread in this example is the flip side of the bear put spread of the
previous example. Instead of buying the spread, as with the bear put, the
spread in this case is sold.
Exhibit 9.11 shows the analytics for the bull put spread.
EXHIBIT 9.11 Greeks for ExxonMobil 75–80 bull put spread.
Instead of having a short delta, as with the bear spread, the bull spread is
long delta. There is negative theta with positive gamma and vega as XOM
approaches the long strike—the 75s, in this case. There is also positive theta
with negative gamma and vega around the short strike—the 80s.
Exhibit 9.11 shows the characteristics that define the vertical spread. If
one didn’t know which particular options were being traded here, this could
almost be a table of greeks for either a 75–80 bull put spread or a 75–80
bull call spread.
Like the other three verticals, this spread can be a delta play or a theta
play. A bullish trader may sell the spread if both puts are in-the-money.
Imagine that XOM is trading at around $75. The spread will have a positive