Bull put spread

Definition

A bull put spread (short put vertical, credit) sells a put at a higher strike and buys a put at a lower strike, same expiry. It collects a credit for accepting capped, defined risk that the underlying finishes below the short strike — a neutral-to-appreciating thesis expressed as premium collection, the defined-risk sibling of the cash-secured put.

How it works / structure

• Legs: −1 put at K2, +1 put at K1 (K1 < K2), same expiry.
• Credit: net credit C; maximum loss (K2 − K1) − C; breakeven K2 − C.
• Payoff at expiry: at/above K2 keep C; at/below K1 lose max; between, lose (K2 − S) − C.
• Parameters (engine-executable): short-strike delta (commonly 0.15-0.35), width, DTE, credit/width floor (premium_per_delta_pctile), IV gate (iv_rank), management (mgmt-profit-target, mgmt-stop-loss, mgmt-rolling down/out, mgmt-time-based-exit).
• Greeks profile: net long delta, short vega, positive theta.
• Skew note: in equity smirks the short (higher) put strike carries richer IV than the long wing — put credit spreads sell the expensive side of the skew (opt-volatility-skew).

When it applies

Support-level theses (“X holds above K2 through expiry”), elevated-IV entries where downside premium is rich, and as the put half of iron condors. Compared to a cash-secured put, the long wing caps catastrophe in exchange for part of the credit — the choice between them is a sizing/risk-budget decision (risk-fixed-fractional).

Risk profile & failure modes

• Crash concentration: equity drawdowns are fast and gapping; put credit spreads realize their max loss in exactly the episodes the premium was compensating for — loss clustering, not independent trials.
• Payoff-ratio arithmetic: risking 3-5x the credit requires win rates that leave little room for regime error.
• IV spike double-hit: declines raise IV, marking the spread against the writer well before the short strike is breached — stops keyed to spread price trigger on volatility, not just price.
• Assignment below the short strike near expiry delivers stock plus a long put — manageable but a different position (mgmt-assignment-handling).

Evidence & limits

Mechanics are contract arithmetic (OCC/Cboe). The premium engine is the volatility risk premium (evidence in opt-implied-volatility), with its documented crash reversals; put-side selling concentrates exactly that tail. No public study establishes put credit spreads as a standalone excess-return class; the platform relies on replay per parameter set.

Falsifiable-thesis examples

Illustrations only, not signals:

• “X will close at or above K2 at expiry, expiring the K1/K2 put spread worthless” — falsified by a close below K2.
• “X will not close below K2 on any day before expiry” — falsified by the daily closes.

Cross-references

• The other three verticals: strategy-bull-call-spread, strategy-bear-call-spread, strategy-bear-put-spread
• Undefined-risk sibling: strategy-cash-secured-put
• Composite: strategy-iron-condor
• Management: mgmt-profit-target, mgmt-stop-loss, mgmt-rolling, mgmt-assignment-handling