Bull Put Spread: defined-risk monthly income, step by step

What is a Bull Put Spread?

A bull put spread (put credit spread) sells a put at a higher strike and buys a put at a lower strike, same expiration. You receive a net credit. Maximum profit is that credit; maximum loss is the distance between strikes minus the credit — known in advance, before you enter.

It expresses the same view as a cash-secured put — "this stock stays above X" — but with a fraction of the capital and a hard floor under the worst case.

Strategy mechanics

Concrete example:

Scenario 1: SPY above $575 at expiration

Both puts expire worthless. You keep the full $240 — about 31% return on the $760 risked.

Scenario 2: SPY between $575 and $565

The short put is in the money. Loss grows as SPY falls, up to the cap.

Scenario 3: SPY below $565

Both puts in the money. Loss is capped at $760 no matter how far SPY falls. That cap is the entire reason this structure exists.

Why traders pick it over a cash-secured put

1. Capital efficiency — $760 of buying power instead of $57,500 of secured cash.

2. Defined risk — a market crash cannot hurt you beyond the spread width.

3. No assignment surprise economics — the long put protects the downside even if assigned early.

The trade-off: the long put costs premium, so the credit is smaller than the naked put's, and you give up the "happy assignment" path of actually buying a stock you wanted.

Picking strikes and expiration

Managing the position

1. Take profits early — closing at 50% of the credit dramatically improves win-rate consistency per unit of time.

2. Define the exit before entry — a common rule: close or roll when the loss reaches 1–2× the credit received.

3. Avoid earnings landmines — a binary gap can run straight through both strikes.

4. Watch pin risk near expiry — if the price hovers at the short strike on expiration day, close rather than gamble on assignment.

Common mistakes

1. Selling spreads too tight to the money for extra credit — the win rate collapses.

2. Sizing by credit, not by max loss — the $760, not the $240, is your real position size.

3. Holding losers to expiration hoping for a bounce — the asymmetry that helped you at entry works against you deep in the money.

Practice the full cycle first

Build the spread, watch theta do its work, close at 50% — then do it again under different volatility. Paper trade a full cycle before risking capital.