3 Bull Put Spread Ideas For This Thursday

Stocks put in an impressive bounce yesterday to recover from some selling pressure earlier in the week.

If the bounce continues, bull put spread trades could do well.

To execute a bull put spread, an investor would sell a naked put and then buy a further out-of-the-money put to create a spread.

A bull put spread is considered less risky than a naked put, because the losses are capped thanks to the bought put.

The following trades are short-term and high risk, so should only be considered by experienced option traders. 

CAT Bull Put Spread Example

Selling the January 20 put with a strike price of 220 and buying the 215 put would create a bull put spread.

This spread was trading yesterday for around $0.50. That means a trader selling this spread would receive $50 in option premium and would have a maximum risk of $450.

That represents a 11.1% return on risk between now and January 20 if CAT stock remains above 220.

If CAT stock closes below 215 on the expiration date the trade loses the full $450.

The breakeven point for the bull put spread is 219.50 which is calculated as 220 less the 0.50 option premium per contract.

In terms of a stop loss, if the stock dropped below 225, I would consider closing early for a loss.

DOCU Bull Put Spread Example

Selling the January 20 put with a strike price of 50 and buying the 45 put would create a bull put spread.

This spread was trading yesterday for around $0.85. That means a trader selling this spread would receive $85 in option premium and would have a maximum risk of $415.

That represents a 20.48% return on risk between now and January 20 if DOCU stock remains above 50.

If DOCU stock closes below 45 on the expiration date the trade loses the full $415.

The breakeven point for the bull put spread is 49.15 which is calculated as 50 less the 0.85 option premium per contract.

In terms of a stop loss, if the stock dropped below 52, I would consider closing early for a loss.

MSFT Bull Put Spread Example

Selling the January 20 put with a strike price of 225 and buying the 220 put would create a bull put spread.

This spread was trading yesterday for around $0.60. That means a trader selling this spread would receive $60 in option premium and would have a maximum risk of $440.

That represents a 13.63% return on risk between now and January 20 if MSFT stock remains above 225.

If MSFT stock closes below 220 on the expiration date the trade loses the full $440.

The breakeven point for the bull put spread is 224.40 which is calculated as 225 less the 0.60 option premium per contract.

In terms of a stop loss, if the stock dropped below 235, I would consider closing early for a loss.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

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