Module 6 Option Strategies

Chapter 3

Bull Put Spread



3.1 – Why Bull Put Spread?

Similar to the Bull Call Spread, the Bull Put Spread is a two leg option strategy invoked when the view on the market is ‘moderately bullish’. The Bull Put Spread is similar to the Bull Call Spread in terms of the payoff structure; however there are a few differences in terms of strategy execution and strike selection. The bull put spread involves creating a spread by employing ‘Put options’ rather than ‘Call options’ (as is the case in bull call spread).

You may have a fundamental question at this stage – when the payoffs from both Bull call spread and Bull Put spread are similar, why should one choose a certain strategy over the other?

Well, this really depends on how attractive the premiums are. While the Bull Call spread is executed for a debit, the bull put spread is executed for a credit. So if you are at a point in the market where –

  1. The markets have declined considerably (therefore PUT premiums have swelled)
  2. The volatility is on the higher side
  3. There is plenty of time to expiry

And you have a moderately bullish outlook looking ahead, then it makes sense to invoke a Bull Put Spread for a net credit as opposed to invoking a Bull Call Spread for a net debit. Personally I do prefer strategies which offer net credit rather than strategies which offer net debit.

3.2 – Strategy Notes

The bull put spread is a two leg spread strategy traditionally involving ITM and OTM Put options. However you can create the spread using other strikes as well.

To implement the bull put spread –

  1. Buy 1 OTM Put option (leg 1)
  2. Sell 1 ITM Put option (leg 2)

When you do this ensure –

  1. All strikes belong to the same underlying
  2. Belong to the same expiry series
  3. Each leg involves the same number of options

For example –

Date – 7th December 2015

Outlook – Moderately bullish (expect the market to go higher)

Nifty Spot – 7805

Bull Put Spread, trade set up –

  1. Buy 7700 PE by paying Rs.72/- as premium; do note this is an OTM option. Since money is going out of my account this is a debit transaction
  2. Sell 7900 PE and receive Rs.163/- as premium, do note this is an ITM option. Since I receive money, this is a credit transaction
  3. The net cash flow is the difference between the debit and credit i.e 163 – 72 = +91, since this is a positive cashflow, there is a net credit to my account.

Generally speaking in a bull put spread there is always a ‘net credit’, hence the bull put spread is also called referred to as a ‘Credit spread’.

After we initiate the trade, the market can move in any direction and expiry at any level. Therefore let us take up a few scenarios to get a sense of what would happen to the bull put spread for different levels of expiry.

Scenario 1 – Market expires at 7600 (below the lower strike price i.e OTM option)

The value of the Put options at expiry depends upon its intrinsic value. If you recall from the previous module, the intrinsic value of a put option upon expiry is –

Max [Strike-Spot, o]

In case of 7700 PE, the intrinsic value would be –

Max [7700 – 7600 – 0]

= Max [100, 0]

= 100

Since we are long on the 7700 PE by paying a premium of Rs.72, we would make

= Intrinsic Value – Premium Paid

= 100 – 72

= 28

Likewise, in case of the 7900 PE option it has an intrinsic value of 300, but since we have sold/written this option at Rs.163

Payoff from 7900 PE this would be –

163 – 300

= – 137

Overall strategy payoff would be –

+ 28 – 137

= – 109

Scenario 2 – Market expires at 7700 (at the lower strike price i.e the OTM option)

The 7700 PE will not have any intrinsic value, hence we will lose all the premium that we have paid i.e Rs.72.

The 7900 PE’s intrinsic value will be Rs.200.

Net Payoff from the strategy would be –

Premium received from selling 7900PE – Intrinsic value of  7900 PE – Premium lost on 7700 PE

= 163 – 200 – 72

= – 109

Scenario 3 – Market expires at 7900 (at the higher strike price, i.e ITM option)

The intrinsic value of both 7700 PE and 7900 PE would be 0, hence both the potions would expire worthless.

Net Payoff from the strategy would be –

Premium received for 7900 PE – Premium Paid for 7700 PE

= 163 – 72

= + 91

Scenario 4 – Market expires at 8000 (above the higher strike price, i.e the ITM option)

Both the options i.e 7700 PE and 7900 PE would expire worthless, hence the total strategy payoff would be

Premium received for 7900 PE – Premium Paid for 7700 PE

= 163 – 72

= + 91

To summarize –

Market Expiry 7700 PE (intrinsic value) 7900 PE (intrinsic value) Net pay off
7600 100 300 -109
7700 0 200 -109
7900 0 0 91
8000 0 0 91

From this analysis, 3 things should be clear to you –

  1. The strategy is profitable as and when the market moves higher
  2. Irrespective of the down move in the market, the loss is restricted to Rs.109, the maximum loss also happens to be the difference between “Spread and net credit’ of the strategy
  3. The maximum profit is capped to 91. This also happens to be the net credit of the strategy.

We can define the ‘Spread’ as –

Spread = Difference between the higher and lower strike price

We can calculate the overall profitability of the strategy for any given expiry value. Here is screenshot of the calculations that I made on the excel sheet –

Image 1_payoff

  • LS – IV — Lower Strike – Intrinsic value (7700 PE, OTM)
  • PP — Premium Paid
  • LS Payoff — Lower Strike Payoff
  • HS-IV — Higher strike – Intrinsic Value (7900 PE, ITM)
  • PR — Premium Received
  • HS Payoff — Higher Strike Payoff

As you can notice, the loss is restricted to Rs.109, and the profit is capped to Rs.91. Given this, we can generalize the Bull Put Spread to identify the Max loss and Max profit levels as –

Bull PUT Spread Max loss = Spread – Net Credit

Net Credit = Premium Received for higher strike – Premium Paid for lower strike

Bull Put Spread Max Profit = Net Credit

This is how the pay off diagram of the Bull Put Spread looks like –

Image 2_Breakeven

There are three important points to note from the payoff diagram –

  1. The strategy makes a loss if Nifty expires below 7700. However the loss is restricted to Rs.109.
  2. The breakeven point (where the strategy neither make a profit or loss) is achieved when the market expires at 7809. Therefore we can generalize the breakeven point for a Bull Put spread as Higher Strike – Net Credit
  3. The strategy makes money if the market moves above 7809, however the maximum profit achievable is Rs.91 i.e the difference between the Premium Received for ITM PE and the Premium Paid for the OTM PE
    1. Premium Paid for 7700 PE = 72
    2. Premium Received for 7900 PE = 163
    3. Net Credit = 163 – 72 = 91

3.3 – Other Strike combinations

Remember the spread is defined as the difference between the two strike prices. The Bull Put Spread is always created with 1 OTM Put and 1 ITM Put option, however the strikes that you choose can be any OTM and any ITM strike. The further these strikes are the larger the spread, the larger the spread the larger is possible reward.

Let us take some examples considering spot is at 7612 –

Bull Put spread with 7500 PE (OTM) and 7700 PE (ITM)

Lower Strike (OTM, Long) 7500
Higher Strike (ITM, short) 7700
Spread 7700 – 7500 = 200
Lower Strike Premium Paid 62
Higher Strike Premium Received 137
Net Credit 137 – 62 = 75
Max Loss (Spread – Net Credit) 200 – 75 = 125
Max Profit (Net Credit) 75
Breakeven (Higher Strike – Net Credit) 7700 – 75 = 7625

Bull Put spread with 7400 PE (OTM) and 7800 PE (ITM)

Lower Strike (OTM, Long) 7400
Higher Strike (ITM, short) 7800
Spread 7800 – 7400 = 400
Lower Strike Premium Paid 40
Higher Strike Premium Received 198
Net Credit 198 – 40 = 158
Max Loss (Spread – Net Credit) 400 – 158 = 242
Max Profit (Net Credit) 158
Breakeven (Higher Strike – Net Credit) 7800 – 158 = 7642

Bull Put spread with 7500 PE (OTM) and 7800 PE (ITM)

Lower Strike (OTM, Long) 7500
Higher Strike (ITM, short) 7800
Spread 7800 – 7500 = 300
Lower Strike Premium Paid 62
Higher Strike Premium Received 198
Net Credit 198 – 62 = 136
Max Loss (Spread – Net Credit) 300 – 136 = 164
Max Profit (Net Credit) 136
Breakeven (Higher Strike – Net Credit) 7800 – 136 = 7664

So the point here is that, you can create the spread with any combination of OTM and ITM option. However based on the strikes that you choose (and therefore the spread you create), the risk reward ratio changes. In general, if you have a high conviction on a ‘moderately bullish’ view then go ahead and create a larger spread; else stick to a smaller spread.

Key takeaways from this chapter

  1. The Bull Put Spread is an alternative to the Bull Call Spread. Its best executed when the outlook on the market is ‘moderately bullish’
  2. Bull Put Spread results in a net credit
  3. The Bull Put Spread is best executed when the market has cracked, put premiums are high, the volatility is on the higher side, and you expect the market to hold up (without cracking further)
  4. The Bull Put strategy involves simultaneously buying a OTM Put option and selling a ITM Put option
  5. Maximum profit is limited to the extent of the net credit
  6. Maximum loss is limited to the Spread minus Net credit
  7. Breakeven is calculated as Higher Strike – Net Credit
  8. One can create the spread by employing any OTM and ITM strikes
  9. Higher the spread, higher the profit potential, and higher the breakeven point.


Download Bull Put Spread Excel Sheet


  1. abhijeet says:

    consider if today i formed bull put spread at 7500 and 7600 pe then it means i m buying 7500pe and selling 7600 pe .Is it right?

  2. ishwar karankot says:

    How to sell a stock in cash market? When we have don’t particular stock dilevery

  3. harshakabra says:

    Dear Karthik Sir,
    Want to say Thank You and appreciate your efforts for all wonderful, knowledge packed modules you have written so far.
    Have read your all modules and at present at Module of Options Theory.
    Your clear n crisp writing style, Way to approach any topic, Beautiful gist/summary at the end, Re-connection old knowledge with new one, and on the top of all-Your real life example which you present as Analogy are superb..
    Pl keep sharing..
    Many thanks

    • Karthik Rangappa says:

      Harsha – thank you so much for the kind words, this is certainly encouraging 🙂

      Please stay tuned as there is some really nice content coming up.

  4. R P HANS says:

    Hi, Karthik,
    As one option is short and another is long, will it be that the time decay will nullify at expiry. My general question is that in option strategy (one leg short and another long) whether the time decay will affect the pay-off or not?

    • Karthik Rangappa says:

      It kind of gets nullified…as time decay is a negative for the long OTM option, it is considered positive for the short ITM option.

  5. Sandeep says:

    Hi Karthik,

    Thanks for your articles on Bull Call and Put spread strategy. What should be the ideal Risk to Reward ratio in case if I look for near future expiry (say expiry within next 20 days).

    • Karthik Rangappa says:

      There is nothing like ideal RRR, it really depends on the trader’s risk appetite. For me personally I look for 1.2 RRR for Bull Call Spread and for Bull Put spread I guess around 1.0 should be ok.

  6. Khyati verdhan says:

    Hi kartik
    If spot increase by 10 points premium increases by 2 points while if same spot decrease by 10 points premium decrease by 2.5 points, specially in deep otm option. Why this all happens??? Please clarify

    • Karthik Rangappa says:

      The change in premium is due to the Delta. In the first step when price increases, the delta also increase. In the 2nd step when price decreases the reduction in price is higher since delta is also high.

  7. Vipul says:

    Sir, as writing option requires considerable margin especially if positions are to be kept overnight, can’t we fine tune this wonderful strategy from intra day POV. Pay only 40% approx margin and take more qty.. Am I right…

  8. R P HANS says:

    Hello sir,
    For taking trade on bull call/put spread. what shall be prerequisite. It can be initiated any day any time just depending on the market trend or some practical boundary conditions like premium value, difference in the premium / strike price etc are to be considered. Because we have seen that these spread positions are not taken by the expert any time, but they take positions few times only in a month. So what makes one to go for spread positions apart from the trend predictions?

    • Karthik Rangappa says:

      These are directional bets, so what really matters is your opinion on the market direction. Do make sure that the volatility is on the lower side and you also expect the volatility to increase going forward. This will help the spread position.

      • R P HANS says:

        But in case of volatility rise, will it not get nullified on long and short positions? Different strike price of the strategy will offcourse see different effect but both premium will increase and pay off may not be affected that much. Is it correct?

        • Karthik Rangappa says:

          When volatility increases, the option premium increases, which is good for long naked option positions!

          • R P HANS says:

            yes, but for strategy where long and short both positions are there, things may not straightforward. Is there any strategy volatility neutral?

          • Karthik Rangappa says:

            Yes, we have volatility neutral strategies as well, although can be quite complex. Will discuss this later in the module.

      • ALM says:

        Volatility on the lower side or higher side???

  9. Preeti says:


    Does kite support these option strategies? would margin requirements differ for these strategies?


  10. Milan says:

    Sir i want to know that, if i short GMRInfra 20 call at 0.05.
    Lot size is 39000 * 0.05 = 1950.
    Now if option expires worthless, and gmrinfra spot price on expiry is 17. Then my profit is 1950rs. ?

  11. sastry says:

    Dear Sir,
    Is it preferrable by me as a conservative and for simple constant gains to select a strategy by selling both CALL & PUT options by adding DELTAS from the middle of the month to take advantage when there is DECLINE on one side.
    Thanks & Regards.

    • Karthik Rangappa says:

      The strategy you are talking about is a short straddle. Will be discussing this is great detail later in the module.

  12. Deepak Ahuja says:

    Credit spread gives handsome profit if expiry period is of 2 to 5 months.

    • Karthik Rangappa says:

      Well, you can create credit spreads with mid month and far month contracts. However liquidity would be an issue at the time of initiation.

  13. Raj says:

    What is the margin amount to be maintained while selling options? how to calculate this amount? Also explain what happens to margin amount when the market goes up / down.

  14. Shanky Agrawal says:

    Hello sir,
    Thanks for the course materials . if i have option which is ITM and its get expired will i get some money over these or all go worthless.

    • Karthik Rangappa says:

      Depends on how deep in the money the option is. For example if your cost of setting up the spread is 100, your option has to be over and above 100 for you to make money.

  15. bonn says:

    can we have micro enable Excel sheet, which fetch data automatically?

  16. Saurabh Bisht says:

    It would be very nice if , like other modules we can have a pdf of options strategies module also 🙂 🙂

  17. ramadevi says:

    Sir, Thanks for your replies. In the above chapter no graphs are shown for identifying the best strikes based on the expiry. Is it the Graphs shown in Bull Call Spread holds goo

    • Karthik Rangappa says:

      It does, but why is it not showing up? It seems to be working fine for me. Can you please refresh the page once?

  18. Akshay says:

    What is the margin requirement for a Bull Put strategy? Can you please explain by giving an example.

  19. Naresh says:

    Dear Karthik , Similar to call spread, can you advice the selection of spreads for put spread initiation depending on whether you are in start of series or middle of series . You had given blue and green charts for call spread module. Thanks Naresh

  20. Abhishek karan says:

    Suppose nifty spot is at 8700.if i sell 1 lot of nifty call option of 8800 receiving rs.20 as premium how much taxes excluding brokerage i have to pay

  21. mohit_1607 says:

    Hi Karthik,
    Had a few queries on the same:
    1. Though you have mentioned, I really could not understand under what scenarios Bull Put is preferred over Bull Call. Is it mainly dependent upon one’s perception towards net debit or net credit? From my understanding, the RRR is more or less similar subjected to strike selection.
    2. Like Bull Call, can we choose any strike combination in this case?
    3. As per my understanding, the value in each spread is derived out of the extrinsic value of the option combination. Therefore, delta and volatility do play an important role in case both legs are way apart. Presumably, the effect of delta and volatility will be more pronounced for the lower strike option in case of both Bull Call and Bull Put. Please validate.

    • Karthik Rangappa says:


      1) This really depends on the volatility – remember volatility drives premiums. If the volatility is high, then premiums get expensive and this is a time when you should avoid buying expensive options. So in this case you may want to use a credit strategy (as in sell options). Likewise if the vol is low, premiums are inexpensive and this is a time I would deploy debit strategy (as in buy options).

      2) You can, but remember the RRR profile changes.

      3) True – volatility and deltas are very important and they have their influence on premiums.

  22. kumaran says:

    sir i tred virtual trading i sold eg 2900 pe for 108 premium when the atock stared rising premium showed 70 when we sell pe should it not be rising here it is decreasing pls explain

  23. kumaran says:

    can u tell which part in previopus chapter ill be very helpful and will move to next chapter thk u

  24. Mehul says:

    Hi karthik
    If i am not wrong in a 2 legged strategy the P/L will be calculated considering the total of 2 lots right, like 75*2 =150 for nifty ?

  25. Prajata says:

    In today’s market if I execute a bull put spread at 9300/9350, what will be my margin requirement. The Zerodha margin calculator shows 46K. Is that correct?

  26. Ankit says:

    How much Margin is required for spread order?
    The maximum loss will be the, spread less the premium received, so why margin calulator shows more margin required than the difference between the spread?

  27. carol says:

    Thank you for the nice and comprehensive analysis.

    Do you know how to create a vertical bull put spread of 90% chance of success with two strike price placed 2 standard deviation away(95%)?

  28. Azeem says:

    I am moderately bullish on auropharma… cuz its at a strong support zone and formed a piercing bullish candlestick pattern
    CMP 614 i expect a move to around 650-655 which is around 6%
    Expiry 22/2/18
    (working) days to expiry 13

    So according to buy call spread strategy i should buy (ATM) CE 620 which is available at 24.40 and sell (OTM) CE 660 for which i will get premium of is 11.40rs
    Max loss = 24.40 – 11.40 = 13rs per share
    Max profit = (660-600) – 13 = 27rs per share

    And according to bull put spread i should buy (OTM) PE 600 which is available at 18.60 and sell (ITM) PE 660 for which i will get premium of 59.50 rs
    Max loss = (660-600) – 40.90 = 19.1 rs
    Max profit = 59.50 – 18.60 = 40.9 rs

    I would go for bull call spread as i want my loss to be minimum
    1st option paper trade 😀 . Lets see if this works out 😛
    Kindly recheck the calculations and respond if anything is wrong with it. Thanks!

  29. Shanmugam says:

    Elaborate OTM & ITM



    Do you provide any kind of a tool which shows the payoff diagram for a particular option strategy?

  31. venu says:

    If we apply the bull call spread or bull put spread , should we wait till expiry for profit or we can close the deal any time ????

  32. mahesh says:

    Thanks for the great explanation.
    Can we imitate Bull Put Spread (net credit) with Bull Call Spread by selling an ITM call option and buying OTM call option (net credit but with bearishness)? Does it have a separate name?

  33. Ganesh says:

    Is there any facility in Zerodha to place this strategy in one order? instead of placing two order?

  34. Vijayakant says:

    Sir pl tell me if spreads are possible in day trading

  35. Vikas Mudgal says:

    In Scenario 1: I am not sure if I am interpreting this point correctly.

    Since we are long on the 7700 PE by paying a premium of Rs.72, we would make
    = Premium Paid – Intrinsic Value (Vikas: Concern is in this formulae)
    = 100 – 72
    = 28

    I thing the formulae should be other-way round that is “Intrinsic Value – Premium Paid”

    • Karthik Rangappa says:

      Vikas, for PE the formula for P&L of ITM option upon expiry is –

      [Strike Price – Spot Price] – Premium paid – all applicable charges.

      • Vikas says:

        Thanks for you reply, it seems I did not phrased my intent clearly.

        There seems a need of correction in this document for Scenario 1:

        Extract from Scenario 1:
        “Since we are long on the 7700 PE by paying a premium of Rs.72, we would make
        = Premium Paid – Intrinsic Value
        = 100 – 72
        = 28”

        My Concern: The premium paid is 72 and Intrinsic Value is 100, however as can be verified above under premium paid it is 100 instead of 72, and Intrinsic value is 100 whereas in formulae it is showing 72.

        Kindly do the required correction or specify clearly why are the values different than what you have calculated above.

        • Karthik Rangappa says:

          Thanks, Vikas, looks like a typo. I’ll check this up. The money you make when you are long on a PUT option is –

          [Max(Strike-Spot, 0) – premium paid – applicable charges].

  36. Kiran Raj says:

    Hi Karthik,

    Great work as always. Of all the modules that I’ve gone through so far, this has been somewhat tricky in understanding. Many a times, I start reading this module from the beginning, on the way, it goes above my head and I tend to lose my shape, eventually closing it without completing. I believe a webinar would be really handy. I just wanted to know if it is already out there. I had checked for webinars on options trading. Few videos made by Abid have popped up. Please let me know if there are any made by the legend “Karthik Rangappa” 😉

    Thanks in Advance

    • Karthik Rangappa says:

      Kiran, yes, Abid has made few videos, which I think are pretty cool. Guess he is going to make more of them. Unfortunately, I’ve not focused much on videos…but I think this one may be a relevant to you –

      Good luck 🙂

      PS: There is only 1 legend and that’s Rajini 🙂

      • Kiran raj says:

        Hello Karthik,

        Thanks for the link. It really was helpful. I have got two questions.. I might sound ridiculous, Kindly bear with me.

        1. Supposing that I have strong directional view for an Underlying (Upside/Downside),
        Which of the following is more beneficial or more likely to be a winning trade?
        a) For upside, Is it buying CE close to the spot price? Or, is it selling the PE Close to the spot price ? Please assume that I’m ready to keep the margins required for selling PE. Similarly, on the flip side, is it beneficial to buy ATM PE or is it to sell ATM CE ?

        2. I’m asking this after back testing for 10 times, being successful on all ten times, including yesterday. In the starting of the series, If the major indices take a steep fall, like they did on 28.06.2018, How far is it sensible to buy CE of slightly OTM ? I have purchased 5 lots Nifty 10800 CE july series at 55. Today it had reached close to 80, almost 35% up. It might be pure luck.. but as there is whole month for the expiry, I believe these kinds of deals are worth for the taking. I know it is stupid to ask this after going through all your modules on technical analysis and professional options trading, but I couldn’t help it.

        PS : I have tested the above mentioned case in almost 10 cases of Nifty 50 and Nifty bank indices, they all have worked in my favor, credits to the time factor. But I was only investing in smaller lots as this has no strategy behind it. I wanted to go in with considerable amount of lots after hearing it from you. Please note, I’m only banking on the Time (as you said, “Time is money”)

        • Kiran raj says:

          “In the starting of the series, If the major indices take a steep fall, like they did on 28.06.2018, How far is it sensible to buy CE of slightly OTM ?” Here, when I’m referring to the start of a series, I’m basically meaning when the current month is about to end and the next month is about to become the current month(I’m not referring to the time when exchange releases the series), Or even in the first 5 days of the current month. Not after the first week at any cost, because I will only have 3 weeks to bank on.

          • Karthik Rangappa says:

            Guess I answered this query in the other comment you posted.

          • Kiran raj says:

            Correct. You have answered in the other query. I was just giving more clarification on what I meant by “starting of a series,”.. thank you very much. It’s clear. With more of varsity, I feel more confident, and convinced that markets aren’t gambling, there is a lot of science behind it. All credits to you and your team.

          • Karthik Rangappa says:

            of course, Kiran 🙂
            Good luck and all the very best!

        • Karthik Rangappa says:

          1) If it is a ‘strong’ directional view, I’d suggest you buy slightly OTM CE. This is assuming there is also enough time to expiry
          2) Well, if you have backtested and convinced then you should go ahead and buy with conviction. Since you have enough time to expiry, you need not worry about time decay. I’d suggest you start with smaller amounts and then ramp it up as you gain more confidence.

  37. Sandeep says:

    How can we buy and sell same stock at different strike price at same time .

  38. Vinay says:

    sir i was looking for online payoff diagrams on net and came thru upstoxx option strategy builder. its really cool, populate the field with actual strike price premium and gives you break even and max p&l at different spot price. can that be done on zerodha because it would be an excellent tool for option traders.

  39. Vijay says:

    Hi The spread sheets that are being shared are good. If we are planning to design a strategy using Futures how do we calculate something like this. Any help


  40. Raghavan says:

    Hi Sir,

    How to build a multi leg strategy in Zerodha Kite?

    For Ex: If I want to enter a Long Call Butterfly Strategy.

    Tata Motors
    Long 1 Call 185 @ 13.2
    Short 2 Call 190 @ 10
    Long 1 Call 195 @ 7.2

    all at the same time. How will the margin requirement and cost to buy the call options system work here?

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