Stock Option Return - Bull Put Credit Spread Return

Bull Put Credit Spread Return

The Bull Put Credit Spread (see bull spread) is a bullish strategy and consists of selling a put option and purchasing a put option for the same stock or index at differing strike prices for the same expiration. The purchased put option is entered at a strike price lower than the strike price of the sold put option. The return calculation for the Bull-Put Credit Spread position assuming price of the stock or index at expiration is greater than the sold put is shown below:

Bull Put Credit Spread Potential Return = (sold put price - purchased put price)/(sold put strike price - purchased put strike price - initial credit)

For example, suppose a put option with a strike price of $100 for ABC stock is sold at $1.00 and a put option for ABC with a strike price of $90 is purchased for $0.50, and at the option's expiration the price of the stock or index is greater than the short put strike price of $100, then the return generated for this position is:

ABC Bull Put Credit Spread Return = (1 - 0.5)/ = 5.26%.

Read more about this topic:  Stock Option Return

Famous quotes containing the words bull, put, credit, spread and/or return:

    Not only the bull attacks his enemies with curved horn, but also the sheep, when harmed fights back.
    Propertius Sextus (c. 50–16 B.C.)

    Then we shall rust in shade, or shine in strife,
    And fluctuate ‘twixt blind hopes and blind despairs,
    And fancy that we put forth all our life,
    And never know how with the soul it fares.
    Matthew Arnold (1822–1888)

    “What are the characteristics of today’s world so that one may recognize it by them?” It pays pensions and borrows money: credit and monuments.
    Franz Grillparzer (1791–1872)

    I’m no angel, but I’ve spread my wings a bit.
    Wesley Ruggles, U.S. screenwriter. Tira (Mae West)

    And the Stranger will depart and return to the desert.
    O my soul, be prepared for the coming of the Stranger,
    Be prepared for him who knows how to ask questions.
    —T.S. (Thomas Stearns)