3 Bull Put Spread Ideas For This Week

3 Bull Put Spread Ideas For This Week

Futures are currently trading higher, and we may be setting up for a short-term bounce this week.

However, a lot can change between now and the market open, so keep an eye on the futures.

If we do get a little bounce this week, 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. 

MSFT Bull Put Spread Example

Selling the July 1 put with a strike price of 240 and buying the 235 put would create a bull put spread.

This spread was trading on Friday for around $1.20. That means a trader selling this spread would receive $120 in option premium and would have a maximum risk of $380.

That represents a 31.6% return on risk between now and July 1 if MSFT stock remains above 240.

If MSFT stock closes below 235 on the expiration date the trade loses the full $380.

The breakeven point for the bull put spread is 238.80 which is calculated as 240 less the 1.80 option premium per contract.

In terms of a stop loss, if the stock dropped below 240, I would consider closing early for a loss.

AMZN Bull Put Spread Example

Selling the July 1 put with a strike price of 100 and buying the 95 put would create a bull put spread.

This spread was trading on Friday for around $0.90. That means a trader selling this spread would receive $90 in option premium and would have a maximum risk of $410.

That represents a 21.9% return on risk between now and July 1 if AMZN stock remains above 100.

If AMZN stock closes below 95 on the expiration date the trade loses the full $410.

The breakeven point for the bull put spread is 99.10 which is calculated as 100 less the 0.90 option premium per contract.

In terms of a stop loss, if the stock dropped below 100, I would consider closing early for a loss.

META Bull Put Spread Example

Selling the July 1 put with a strike price of 150 and buying the 145 put would create a bull put spread.

This spread was trading on Friday for around $0.75. That means a trader selling this spread would receive $75 in option premium and would have a maximum risk of $425.

That represents a 17.65 return on risk between now and July 1 if META stock remains above 150.

If META stock closes below 145 on the expiration date the trade loses the full $410.

The breakeven point for the bull put spread is 149.25 which is calculated as 150 less the 0.75 option premium per contract.

In terms of a stop loss, if the stock dropped below 150, 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.

*Disclaimer: On the date of publication, Steven Baster did not have (either directly or indirectly) positions in some of the securities mentioned in this article. All information and data in this article is solely for informational purposes. Data as of after-hours, June 20, 2022.

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