Do you want to dive a little deeper beyond the basics of options and learn some truly exotic investment strategies? 

Vertical spreads, and under that umbrella, put credit spreads, would be a great next step in expanding your knowledge of options beyond long/ short calls and puts, and straddles/ strangles. 

After learning about long/ short calls and puts, a logical next step is to learn about straddles and strangles. What comes after that are a variety of what are referred to as spreads. There are vertical, diagonal, and horizontal (calendar) spreads. Here we’ll talk about one of the four types of vertical spreads, the put credit spread, aka, the bull put spread.

Out of the four types of vertical spreads, two are credit spreads, and two are debit spreads. Two of them are used if you feel neutral or bullish on a position, and the other two are if you’re feeling neutral or bearish, the common factor in all four being that you generally feel neutral towards the direction of the underlying price.

Let’s get into more details of this unique play.

What is a Put Credit Spread?

A put credit spread, aka a bull put spread, is a more advanced play, or strategy, that is used in options trading to capture a premium instantly, with the goal to keep some of, if not all of the premium as your source of profit.

The reason why they are referred to as “vertical” spreads can be shown graphically: 

Diagram showing a vertical spread that directly cooperates with the strike price, diagonal, and horizontal spread in options trading.

A vertical spread takes its name from its correlation with strike price.

You’ll notice that with vertical spreads the expiration date remains the same, but the strike prices will vary. The variance in the strike prices is the “spread”. Thus, quite literally, a “vertical spread”.

Now, most strategies are either bullish or bearish. But with options, they open a new realm of possibilities, allowing you to capture profit if there is very little movement in the underlying price. This is the goal of vertical spreads. A put credit spread is a play you want to use when you are feeling neutral or slightly bullish towards the underlying price.  

How a Put Credit Spread Works

Okay, we got the basics down, so how do you make money with this play? Or rather, keep the money you initially receive. 

This play is unique in the sense that, instead of purchasing an investment and then selling it back at a higher price to profit, you are actually selling an investment and immediately getting money for it in the form of a premium. The key, however, is to keep that premium. So how do you make sure you keep that premium, and how can you lose it? 

This is how it works: with vertical spreads, you choose either two calls or two puts. Since this is a “put” credit spread, you’ll choose two puts, each with two different strike prices. And in the case of a put “credit” spread, you will be receiving a credit. Remember accounting 101: debit is money going out, credit is money coming in. 

The last piece of information to digest in order to fully understand how this play works is going over a quick reminder of what in-the-money (ITM) and out-of-the-money (OTM) means for puts. Puts are ITM when the strike price is above the current underlying, because they give you the right to sell at a set price, so of course it’d be in-the-money if you could sell for more than the underlying price. Vice versa for OTM puts, the strike price is below the underlying.  

Now that you understand the basics of how the components work, let’s put them all together in a quick example: 

You are feeling slightly bullish/ neutral on the direction of JNJ’s underlying price, so you decide to use a put credit spread. What you want to do is find two puts of JNJ with two different strike prices, but the same expiration date. For put credit spreads, you want to sell, or short, the contract with the higher strike price, and buy or long, the contract with the lower strike price. 

You sell one JNJ put with a $185 strike at a premium of $5.63 per share. So you receive $563.00 for the trade. 

Then you buy a put with a $180 strike at a premium of $2.68 per share. For a total of (-)$268.00. 

Net credit/ debit = $563 + (-$268.00) = $295 credit.

We’ll give a more in-depth example later on. Let’s stick to the basics for now.

Entering a Put Credit Spread

If you have read about put credit spreads before, or similar plays, you’ll often see the explanation saying “two simultaneous trades”, when in fact the trades aren’t done simultaneously, they’re just thought of as simultaneous because the play is thought of as one trade. 

Liquidity: So to enter a put credit spread position, choose if you want to sell or buy a put first, it doesn’t really matter, other than one crucial factor. That is, liquidity. There is no set number that we can say “it’s good to enter at “x” volume or higher”. Sometimes one contract will be more liquid than the other, so check both so you avoid executing one trade and not being able to place the other one. Most retail traders prefer a volume higher than 50. 

Bid/ ask spread: Look at the bid ask spread as well. The bid is what the contracts are trying to be bought for, and the ask is what the contracts are trying to be sold for. Most brokerages, unless you set a limit, will automatically fill an order, as best it can, in between the bid ask, and it is possible the trade will execute at an unfavorable price. So set a limit price at what you’re happy either receiving or spending. 

Now that you know to enter into liquid positions at a price that’s more desirable set by a limit, simply execute the trades. It doesn’t necessarily matter which one you start with. 

So the next step is actually selling a put and buying a put. Sell a put contract with a higher strike price than the one you bought it for, and make sure both contracts have the same expiration date. Once the trades execute, you have officially entered into a put credit, or a bull put spread. 

Exiting a Put Credit Spread

We haven’t really talked much about the expirations dates of the puts you trade. The expiration dates will directly influence when you need to exit your position. They don’t totally dictate it, but they play a major factor. 

For example, I myself decided to enter into a vertical spread recently, and I chose expiration dates that were far too soon (I came to find out). If you’ve been following the market recently, specifically starting at the very end of March to the beginning of April, and even more specifically with tech stocks and NASDAQ, they’ve been pulled down to the depths by the market ‘bear’. 

My contracts expired on Apr 14, so to be sure I was out of the positions, I had to sell, at the very latest, before market close on the 13th. I got out of the positions no problem, but I lost a lot of money on some of the trades I had placed because I was forced to liquidate them. Had I chosen an expiration date further into the future, I could’ve held on to them for longer. And now, based on the movement of the underlying securities I was looking at, I would’ve profited! 

So there is a blessing and a curse with choosing expiration dates. On one hand, contracts with an expiration date further into the future give more time for your position to move in a favorable direction. But because of this, the longer out the expiration, the more expensive the contract. 

The sooner a contract’s expiration date is, the riskier it is. They have less time to move so they are not worth as much as one with a later date. This all has to do with the pricing of options contracts. Which is an interesting, complex process that is worth knowing. It is one of the fundamental secrets of options trading.

So choosing when to exit your put credit position depends first one the expiration date you choose. What’s your risk tolerance, how much are you willing to spend, what is the time period you think the price will remain neutral or slightly bullish? All of these questions need to be taken into consideration before you even enter into the position. Don’t trap yourself like I did, give yourself breathing room and spend within your means. 

What Impacts a Put Credit Spread?

If you are at all familiar with options, even the basics, you know that there are a slu of factors that can impact even just a long call. With just a long call and put, movements in the underlying price, time decay, and changes in implied volatility can have a huge impact on even the basic plays. But when you have a short and a long position, and you also have to factor in a break even point to show when you’d profit and when you wouldn’t, suddenly there is a lot to take into consideration. Let’s look at some of the important factors. 

Change of Stock Price

A change in the underlying price always causes movements in the premium of their derivatives. There are two key ways you can analyze how a stock’s price will affect the premium of its options. Those are known as Delta and Gamma. Delta and Gamma are two of the “Greeks” in options trading out of the four that can be used for risk analysis. 

There could be a whole article about just the Greeks themselves, you could probably even fill a small book about them! But for now, we’ll just look at the basics of Delta and Gamma. 

Delta is the predicted, or theoretical measure of how much the premium of an option will change based on a $1 movement in the underlying stock. Firstly, you cannot have a delta higher than 1 or lower than (-1). Deltas are typically higher when a contact is out-of-the-money, closer to 1, -1; and lower when they are closer at-the-money, closer to 0.5, -0.5.

So how do you use delta? Delta kind of reminds me of a stock’s beta, if you’re familiar with that metric. For example, if an option has a delta of 0.7, and the underlying stock moves $1, the premium of the option changes by $0.7, in theory.

Regarding gamma, this is essentially the acceleration rate that is tied in with delta. Gamma is a predicted measure of how fast an option premium will change when the underlying price moves. Because when the underlying price moves, the options premium doesn’t change instantly, there is a delay. If there is a higher gamma, the premium will respond faster to underlying movements, the lower the gamma, the slower it will change. 

Implied Volatility Change

Implied volatility (IV) tremendously impacts an options premium, and this factor is often overlooked by beginners; a simple, common mistake that can be avoided

Here’s the distilled version of IV and its effect on option’s premiums: IV is a measure of predicted volatility. The psyche of the market is not a big fan of volatility, because more predicted volatility means more unpredictability, and investors generally want more certainty with their investments because they have their money at stake. So as IV falls, the market gets more bullish, and vice versa. 

The effect IV has on options premiums is a directly correlated relationship. The higher the IV, the higher the premium because there is a higher chance for the price to change a lot. 

One thing you really need to look out for is when IV gets crushed. IV crush is a symptom of the market when IV reacts to a sudden change in the level of investors uncertainty. Again, the lower IV, the more certainty they feel. 

Earnings reports have generally always created large movements in the associated stock’s price. This is because right before earnings are released, uncertainty is at an all time high, everyone is feeling antsy to see if the company did well or fell short. After earnings are released, all that uncertainty is extinguished, IV plummets because of this, and the underlying price adjusts itself to reflect the results of the earnings report, thus greatly affecting the premium of the option. 

The lesson here? Unless you know what you’re doing, avoid trading options when earnings are going to be released. You can look at earnings reports calendars to easily see when these dates will occur for the specific stock. You don’t want to hold long positions when earnings are released, because not only will IV get crushed, but your potential profits will also. 

Time Decay

Time decay can be an option trader’s worst enemy. In some cases you can profit from the change in time, like with calendar call spreads, but we won’t get into that right now. Let’s just look at the effect of time decay

Think of an option contract you long as an ice cream cone you’re holding in the summer on the beach. The value of the option is the ice cream, and for every minute that passes, the ice cream melts, just like the premium. 

The further out an expiration date is, the less of an effect time decay has on an option’s premium, but then you have to spend more money on contracts that have expiration dates further out.

A chart illustrating the concept of 'time decay' in options trading, showing slow time decay and fast time decay.

The closer an options contract is to its expiration date, the more of a role is played by time decay.

Again, we won’t get into too many details here about the greeks; but the others, theta and vega, are measures of the theoretical effects of time on option premiums. Just another rabbit hole to dive down if you’re interested..

It’s looking at this factor, time, combined with the other ones touched on in this section that’ll be the key to understanding the basics of the effects of various factors on option premiums. 

Calculating Profit and Loss

We’ll simplify the process of calculating profit and loss with some equations and a basic explanation so you can just plug in variables to see your profit/ loss/ break-even. Later we’ll show an example and calculate its profit/ loss so you can see how to do it in action.

Maximum Profit

Max profit = net premium received

Your max profit is equal to the amount of premium received initially from selling the contract with a higher premium, less the amount spent on the option with the lower premium. Your goal is obviously to keep that premium initially received. 

Maximum Loss

Max loss = the spread between the strike prices – net premium received

The worst case scenario with this strategy is the underlying price falls below the strike price of the option you purchased. That would mean both contracts lost, and you’d hit your max loss for this play. 

Break-Even Point

Break-even point = short put’s strike price – net premium received

If the underlying price moves in a direction that’s unfavorable for this strategy, you can only hope that you can keep some premium, because if it keeps moving in that direction, you’ll slowly lose your premium, then it’ll reach a point where you make nothing, you break-even. 

Here’s an infographic that can help to visualize the break-even point:

A chart shows price activity to demonstrate the break-even point in a bull put spread.

This chart illustrates the break-even point in a bull put spread.

The Risk of Early Assignment

Early assignment can be a scary thing when selling options, because it requires a lot of capital, and can theoretically happen at any time. You should never, ever, short (or sell) an option if you don’t have enough capital to comfortably spend on 100 shares of the underlying stock. 

This is because if you sell a contract to someone, they have the right to exercise their privilege to use the rights described in the contract, to buy or sell stock at a set price. If you sell a contract and the person on the other side exercises it, you’ll be responsible for providing the shares. You’ll have to buy 100 shares if you’re assigned a put. 

Now, only about 10% of all option contracts are actually exercised, but you shouldn’t bet on that. With most contracts, the other investor can exercise whenever they want. 

Remember, though, that the essence of this play is to earn money when there is very little movement in the underlying price, and it’s extremely unlikely for someone to exercise a contract unless there is very significant movement in the underlying price. 

Adjusting the Put Credit Spread

Adjusting a position simply means changing, or hedging your current position to hopefully create a more favorable scenario for yourself if your position is headed downhill, or you just want to capture more profit.

The prism that you should look through when making any adjustments to an option position is, “how does this affect risk”. Both the current risk of your position, and your risk tolerance need to be taken into consideration. If you adjust a position because you’ve already lost money, and you lose even more money from that adjustment, you could be in serious trouble. A greed filled downward spiral… Setting boundaries for yourself is key “I am not comfortable losing any more than x”. 

Since this is a “bull” put spread, we can reasonably assume that any downward movement in the underlying price is bad news for the play. If you are in this situation, one option you have is to open a bear call credit spread to hedge against downside risk. Having these positions open simultaneously creates what’s known as an iron condor, which acts very similarly to an iron butterfly. 

You’ll receive credit from the trade and essentially incur no additional risk. Adding more premium adjusts the break-even point, giving yourself a larger safety net. See chart below.

The chart shows how Bull Put Spread adjust to Iron Condor and shows how he can limit gains and protect from losses.

The Iron Condor will limit gains, but also protects from losses.

Lastly, one of the most common ways of adjusting a position is to roll it, or close it and reopen it with an expiration date further in the future. 

Rolling the Put Credit Spread

Rolling is a method of readjusting your play that can be used to create a better position for yourself. You can also think of rolling a position as essentially extending the length of time you want to hold onto it 

Adjusting and rolling positions is about being active with your trades and not just letting them sit and fester, but adjust them to current conditions to keep the position healthy. 

One of our core values, and a value that should be heeded by all investors, is to not be greedy. Being greedy basically means you keep listening to that little voice that can pop into your head that says something like, “hold on to it just a little longer, you can still make more money” or “if I hold on to this for longer maybe I can recoup my losses”. You act more on emotion, rather than logic. 

Something that directly counteracts greed is by simply acting logically. So how can a trader roll their position, logically?

Rolling positions has gotten a copious amount of investors in a world of hurt because they wrongfully assumed that if they gave their position more time after it lost money, it would either recover from some of those losses, or even cut a small profit. Sometimes this can mean you lose twice as much, if not more, than you would if you just closed the position. Don’t be greedy, think logically. 

So if you choose to roll your position, which again is to first close your position (buy back the contract you shorted, sell the one you longed) and then, keeping everything else the same, set up the same position with expiration dates further into the future. If there is logical, sound evidence that supports your decision to do this, then you have some reason to move forward. Just leave those emotions at the door. 

Recap: Let’s Dive into an Example

Alright, let’s set up a couple of put credit (bull put) spreads. One that shows maximum profit and the other one that shows you maximum loss. 

Say you are bullish on PayPal (PYPL) over the next month, so you want to open a put credit position. Let’s imagine PYPL is currently trading at $100 per share. 

Sell a put at a premium of $7.80 per share with a $105 strike price that expires May 20.

Buy a put at a premium of $3.65 per share with a $95 strike price that also expires May 20. 

You receive $415 in premium total. (7.80 – 3.65) *100 = $415.00

That’s the complete setup. 

Max Profit

Remember earlier we said your max profit is equal to the net premium received, in this example that is $415.00. Let’s say at expiration PYPL closes at $110, this means you’d realize your max profit. Note that any movement in the underlying price above the upper strike price will not further increase the profit you earn. You’ll just keep the net premium. 

Max Loss

Max loss is realized when the share price of PYPL falls below the lower of the two strike prices. You cannot lose more than a certain amount though. The way to calculate that is by taking the difference in strike prices, less the difference in premiums. 

[$105 – $95 – (7.80 – 3.65)] *100 = 

($10 – $4.15) * 100 =

5.85 * 100 = $585.00

So your max loss would be $585.00.

Put Credit Spread and Bull Put Spread: Two Sides of the Same Coin

Dive into the world of options trading and you’ll come across the terms “Put Credit Spread” and “Bull Put Spread”. Though they might sound different, they represent the exact same strategy. The two names simply emphasize different facets of this approach. Let’s decode each term to grasp why they’re used interchangeably.

Put Credit Spread:

Put: Here, we’re discussing put options on stocks. These are contracts that grant the holder the right, but not the obligation, to sell an asset at a predetermined price before a set date. While we’re focusing on stocks, remember, options can be based on various assets.

Credit: When you employ this strategy, you’ll notice a net credit reflecting in your trading account. That’s because the premium from selling one put option (at a higher strike price) surpasses the amount paid for another put option (with a lower strike price).

Spread: Simply put, this denotes that the strategy uses more than one option component. For the Put Credit Spread, it involves selling one put option (labeled the “short” leg) and buying another at a lower strike price (the “long” leg).

Bull Put Spread:

Bull: This term suggests an optimistic stance on the underlying stock or index. You stand to gain when the underlying asset either ascends or remains above the strike price of the sold put.

Put Spread: This echoes the point mentioned earlier: selling one put option while concurrently purchasing another with a lower strike price.

So, Why Are They the Same?

Both strategies revolve around the same actions: selling a put option and procuring another at a decreased strike price. The main goal? To capitalize on a neutral to bullish swing in the underlying stock, with a safety net against minor downward shifts, thanks to the acquired put.

Why the Dual Names?

It’s all about the angle:

  • “Put Credit Spread” underscores the credit (or net premium) obtained when kickstarting the strategy.
  • “Bull Put Spread” places the spotlight on a bullish market sentiment that typically accompanies this strategy.

In a nutshell, whether you dub it a “Put Credit Spread” or a “Bull Put Spread”, the strategy remains unchanged. Which name you opt for usually hinges on the aspect of the approach you’re looking to stress.

Pros and Cons of Using a Put Credit Spread


  1. You receive instant capital, that you can either keep, or is applied to the 100 shares you’d have to purchase if you were assigned the contract. This is a unique aspect of options that isn’t possible with most other investment strategies. And even if you don’t keep the premium you initially received, and in the worst case scenario you are assigned the contract, the premium initially received can be applied to purchasing the 100 shares, essentially discounting what you’d be obligated to purchase.
  2. It’s an effective strategy if you are neither bullish nor bearish on a position, opening up a new possibility that can’t be realized without using this strategy or one similar to it. Most of the time in the market, investors earn or lose money based on movements in stock’s price going up or down. The unique thing about this strategy is that even if the price doesn’t move at all, you still make money. This can be a very useful strategy for sectors that are less volatile than others, like utilities for example. 
  3. Can be easily hedged/ adjusted. We went over some ways to adjust your strategy given different scenarios. The benefit with this play is, you have a few different options that you can use in a few different scenarios. These various ways to adjust the play can greatly lower the overall risk of the strategy if used currently.


  1. Can require a lot of backup capital in the case that you’re assigned the contract(s).One of the biggest downsides to shorting contracts is the risk of assignment. And no matter how confident you might be in your strategy, it is a very good idea, and should be a personal requirement, to be able to have enough to cover yourself in case of assignment. 
  2. Risk of assignment, in general. You can avoid the risk of assignment entirely if you only choose to long positions. Even if you have more than enough to cover in the case of assignment, a major negative aspect to this play is having to expose yourself to that risk in the first place. Having a looming feeling that assignment could happen is challenging for some investors, and why the play is sometimes avoided entirely. 
  3. Requires a lot of research and practice to master. This is not an easy play to understand, and even when you feel like you know it inside and out, and are able to explain it to someone, your confidence in your understanding of the play can quickly change when you actually put it into practice. It takes time for an investment strategy to become profitable, even one where you simply long stock. To add a whole other layer of complexity to your strategy by employing options can really shake things up, and make them rather challenging to put into practice.


To wrap things up, we’ve talked about a put credit, aka a bull put, spread. This is a neutral to bullish play that uses two options of the same type with two different strike prices, but the same expiration date, to capture a premium upfront, with the goal to keep that premium through the expiration of the options you hold in the play. 

This is a unique strategy in that you receive premium upfront that either becomes your profit, creates a small cushion used to protect against small downward movement in the underlying price, or can be applied to purchasing 100 shares of the underlying in the case that you are assigned the put. 

This play can profit if the underlying price goes up or stays the same, and can be protected in various ways if the direction of the underlying price goes down. 

Just make sure that with this play, you do your research, spend thoughtful time planning before you employ the strategy by evaluating your risk tolerance, checking earnings report calendars to avoid IV crush, and keeping time decay in mind in relation to the expiration date you choose. Without a doubt, this is a sophisticated options strategy and one that should be used expert traders. If you don’t feel confident trading, consider practicing this strategy with a demo account, or add options trading alerts to your own trading strategy.

Options can lend the potential to capture sizable gains in almost any market condition. We’ve explained here one of the key strategies used, and with knowledge of this strategy, you can build off that to transition into learning even more complex plays. 

Put Credit Spread: FAQs

How Do You Make Money on a Put Credit Spread?

You make money on a put credit spread by collecting a net premium from selling a put with a higher strike price (thus a higher premium) and buying a put with a lower strike price. You keep that money, or premium, if the underlying price stays the same or moves up. 

Are Put Credit Spreads Profitable?

Yes, put credit spreads are profitable. However, they are only profitable if the premium you receive initially stays above the amount you lose, the break-even point. 

What is the Max Loss on a Put Credit Spread?

Your max loss on a put credit spread is equal to the difference in strike prices of the puts, less net premium received, multiplied by 100. 

Max loss = (Strike price 1 – strike price 2 – net premium) * 100

Is a Put Credit Spread Bullish or Bearish?

A put credit spread is a bullish strategy. In fact, the other name of the strategy is commonly referred to as a bull put spread. Where “credit” indicates receiving money initially and “bull” obviously meaning it’s a bullish strategy. 

Are Put Credit Spreads Safe?

Generally, put credit spreads are a safe investment when other factors are taken into consideration. 

However, if this play is blindly used, you expose yourself to several risk factors including downward underlying price movement and assignment. So you need to know what to do to protect yourself in the case that those things happen. 

Can You Sell a Put Credit Spread Before Expiration?

Yes, you can sell, or close, a put credit spread before expiration. If you sell a contract, you have the opportunity to buy it back, and then you can sell the position you long, which would therefore close your put credit spread position. 

What Happens if You Get Assigned a Put Credit Spread?

If you get assigned a put credit spread, you will be obligated to purchase 100 shares of the underlying stock. If you get assigned a put, you need to purchase 100 shares, if you are assigned a call, you need to sell 100 shares. Because the other investor, with a put, has the right to sell 100 shares at a set price, and you would be the one buying the shares they’re selling.