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

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