Bull Put Spread: Setup, Payoff and Worked Example

By Diego Alducin · Published 2026-06-04

A bull put spread is a two-leg, defined-risk options strategy: sell 1 put at a higher strike and buy 1 put at a lower strike, both with the same expiration, for a net credit. Maximum profit equals the net credit; maximum loss equals the strike width minus the net credit — capped by the long put at the lower strike.

Construction

Both legs are puts on the same underlying with the same expiration. The spread is entered for a net credit because the short put (higher strike, closer to ATM) is worth more than the long put (lower strike, further OTM).

The strategy has a bullish-to-neutral outlook. It profits when the underlying stays flat or rises through expiration. Implied volatility affects both legs’ premiums; higher IV produces a larger net credit for the same strikes.

Payoff Formulas at Expiration

Strike width = short put strike − long put strike. The breakeven is the short put strike minus the credit: below this point the premium no longer fully offsets the assignment loss. At or above the short strike at expiration, both puts are OTM and the full credit is kept.

Worked Example

Max profit: $1.50 × 100 = $150 (XYZ at or above $95 at expiry)

Max loss: ($5.00 − $1.50) × 100 = $3.50 × 100 = $350 (XYZ at or below $90)

Breakeven: $95.00 − $1.50 = $93.50 per share

Arithmetic verification at key prices

At $85 (below long put strike): Short $95 put: $95−$85 = $10 ITM → −$10 + $2.50 = −$7.50. Long $90 put: $90−$85 = $5 ITM → +$5 − $1.00 = +$4.00. Total: −$7.50 + $4.00 = −$3.50 per share = −$350. Max loss confirmed.

At $90 (at long put strike): Short $95 put: $95−$90 = $5 ITM → −$5 + $2.50 = −$2.50. Long $90 put: exactly ATM, zero intrinsic → −$1.00 (full premium lost). Total: −$2.50 − $1.00 = −$3.50. Still max loss — the long put at exactly $90 has zero intrinsic value.

At $93.50 (breakeven): Short $95 put: $95−$93.50 = $1.50 ITM → −$1.50 + $2.50 = +$1.00. Long $90 put: OTM (>$90), expires worthless → −$1.00. Total: +$1.00 − $1.00 = $0. Breakeven confirmed.

At $95 (short put strike): Short $95 put: expires at $0 intrinsic (ATM), P&L = +$2.50. Long $90 put: OTM → −$1.00. Total: +$2.50 − $1.00 = +$1.50. Max profit confirmed.

At $102 (above both strikes): Both puts OTM and worthless. Short put: +$2.50. Long put: −$1.00. Total: +$1.50. Max profit confirmed.

Payoff table

Assignment and Expiration Mechanics

The short $95 put is the only leg that can result in assignment.

• XYZ at or above $95 at expiration: Both puts expire worthless. Full credit kept. No assignment.
• XYZ between $90 and $95: Short $95 put is assigned (buy 100 shares at $95); long $90 put expires worthless. Net P&L slides from $0 to −$350 as XYZ falls from the breakeven toward $90.
• XYZ at or below $90: Short $95 put is assigned (buy at $95); long $90 put is exercised or sold (worth $5 per share). The two offsets cancel beyond $90 — max loss is flat below $90.

When the short put is assigned at $95, the trader acquires 100 shares with an effective cost basis of $95 − $1.50 = $93.50 (the breakeven). However, the long $90 put simultaneously offsets $5 per share of that loss if the stock is at or below $90 — the net effective cost is therefore bounded at $90 + ($3.50 net loss / 100) per share, i.e., the shares are acquired at $90 strike + $3.50 worst-case spread loss = $93.50 all-in per share at worst.

Early assignment on the short put is uncommon — put holders rarely exercise early because they give up remaining time value. (Source: OCC)

Margin and Capital Requirement

A bull put spread is a defined-risk strategy. Margin requirement is typically the maximum loss: (strike width − net credit) × 100. For the example: ($5 − $1.50) × 100 = $350 per spread. The long put at $90 is the hedge that limits the broker’s exposure to this fixed amount. No buying power beyond $350 per spread is consumed.

Compare this to a cash-secured put at the same short strike ($95): that strategy would require $95 × 100 = $9,500 in cash collateral for potentially the same short put. The bull put spread dramatically reduces the capital requirement by adding the long put as protection.

Bull Put Spread vs. Cash-Secured Put

More Strategy Guides

• Bear Call Spread — mirror-image credit spread using calls instead of puts
• Iron Condor — combines a bull put spread + bear call spread
• Cash-Secured Put — undefined-risk version of the short put leg
• Covered Call — long stock + short OTM call
• Protective Put — long stock + long put, downside hedge
• Iron Butterfly — short ATM straddle + long OTM wings
• Calendar Spread — short near-dated + long far-dated, same strike
• Wheel Strategy — CSP to assignment to covered call cycle