Bull Put Option Screener

Hi, and welcome to the Options Learning Center. I'm going to show you how to sell bull put spreads and use Barchart to get the most out of the strategy.

What Is A Bull Put Spread?

A bull put spread, also known as a put credit spread, is a strategy that combines two put option contracts on the same underlying asset with the same expiration date but different strike prices. The investor sells a higher-strike put option and buys a lower-strike put option. The difference between the two is a net premium, or credit for the trade.

• Vertical Spread Strategy
• Two Put Options: Same asset & expiration, different strikes
• Sell Higher-Strike Put: Receive premium
• Buy Lower-Strike Put: Pay premium
• Net Premium: Receive credit for the trade
• Benefit from Time Decay: Also known as theta

This strategy aims to profit from a limited upside in the underlying asset's price or from time decay, also known as theta.

The goal of a bull put spread is for the underlyings' price to stay above the short put's strike price. When this happens, the investor experiences the maximum profit. Any downward price movement below the long put will lead to a loss.

The maximum profit is limited to the difference between the premiums received from selling the higher strike put and the premium paid for buying the lower strike put. The maximum profit condition happens if the underlying stock price exceeds the short (or higher) strike price by expiration.

The maximum loss is limited to the difference between the strike prices of the two put options sold short, minus the net premium received. Maximum loss occurs when the underlying asset's price falls below the long (or lower) strike price at expiration.

Bull Put Spread Goals and Outcomes

• Goal: Underlying trades above short put strike
• Max Profit: Net premium Received
• Max Loss: Defined

Trade Examples

Let's use some real-world examples from Barchart to help you understand the anatomy of a bull put spread.

Screening The Market For Bull Put Trades

Barchart makes it easy to look for bull puts. To see potential trades using that strategy, simply navigate to Barchart.com, click on the Options tab, and then click on Bull Put Spread Screener.

You will immediately see a results page. However, you can search for other trades using dozens of filters for a more personalized screen.

Customizing the Screener

You may prefer to tailor-fit your screener to reflect different strategies and risk profiles.

To customize your screener, click on the Set Filters tab. You can select from dozens of filters, such as option details, analysis, and even underlying stock information.

Use the search box to find a filter, or use the filter category drop-downs to find the data you want to screen for.

For the purposes of this trade example, I'm going to screen for any bull put with an 80% chance of expiring out of the money, and with a maximum loss of $3 per share of $300 total. I'm going to say I want trades only with an 80% chance of expiring out of the money.

Once your filters are set, click the"See Results" button.

Once you have a list of potential trades, you can sort them by clicking on any column heading. You can also click the "Save Screener" button at the top, so you can scan for future trades using the same criteria.

In this example, Nvidia is currently trading at $123.04. This trade suggests selling a short put on Nvidia, with the $105 strike expiring on August 16, 2024, resulting in a $1.82 premium.

On the other side of the bull put, we have the $102 long strike, which costs $1.38 - with the same expiration date.

Our net credit is $0.44, or $44 total. The maximum profit you could earn from this trade is $44. There's also an 81.8% chance the short put will expire out of the money; in other words, there's an 81.8% chance you'll experience a maximum profit condition with this example trade.

Now, let's see what happens if this bull put expires in or out of the money.

Bull Put Expires Out Of The Money (Profit)

Fast forward to the expiration date, August 16, and let's say NVDA's current trading price is now $110. That means your bull put will expire worthless, as the buyer of your short put would have no reason to exercise their option.

The long put will also expire worthless as it, too is out of the money.

So, the options will disappear from your account, and you will get to keep the full $44.

Bull Put Expires In The Money (Loss)

If Nvidia stock drops to $100, below the $102 long strike, the trade will now hit the maximum loss condition.

To calculate the maximum loss, take the difference between the long and short strike (also known as the width of the spread) and subtract the credit received, multiplied by 100. For this trade, that's $2.56 per share, or $256 per contract.

($105 - $102) = $3.00
$3.00 - $0.44 = $2.56
$2.56 x 100 = $256.00

If you notice that the stock price moves close to the long strike, it's a best practice to exit the trade right before expiration, as you would be assigned on the trade.

You would exit the trade by using a buy-to-close order, buying the same put you originally sold, the Nvidia $105 strike put.

Profit/Loss Across Different Price Points

Here's a table detailing the profits and losses at different price points.

As you can see, as Nvidia's price moves up or down, you'll ultimately end up with a profit or a loss.

In this example, you'll experience a maximum profit when Nvidia's stock price stays above $105 at expiration. Any price movement below the breakeven point will result in a loss.

To get the breakeven point, subtract the short strike price from the net credit to calculate the breakeven price, which, in this example, is $104.56:

$105.00 - $0.44 = $104.56

Screening Bull Puts For a Specific Underlying Asset

Barchart also allows you to search for bull put spreads for a specific asset. All you need to do is go to the stock or asset's Price Overview page on Barchart.com. Once there, look at the menu on the left and click Vertical Spreads under the Options Category.

Click on the Bull Put tab.

The first thing you want to do is change the expiration date to your preference. Then, to start customizing your results, click on "screen".

Once in the Bull Put Screener, click on Set Filters, and you'll see the same screen you saw earlier, but for that specific underlying asset and expiration date. Now, you can add your preferred filters.

Pros And Cons

The biggest advantage of selling bull put spreads is the ability to sell options with a small account because the capital required is usually only the maximum loss amount, which in our example was $256.

Investors can also earn a premium selling bull puts with limited and defined downside risk.

Finally, this strategy can be profitable in a neutral or slightly bullish market, allowing investors to benefit from time decay.

Advantages of Bull Put Spreads

• Small Account Use: Requires only max loss amount
• Earn Premium: Sell bull puts with limited risk
• Defined Downside Risk: Clear maximum loss
• Profit in Neutral/Bullish Market: Benefit from time decay

However, there are some drawbacks to consider:

The bull put spread has limited upside potential, meaning the profit is capped at the net premium received.

And, if the underlying price falls below the long strike price, the investor will experience a maximum loss condition.

Drawbacks of Bull Put Spreads

• Limited Upside: Profit capped at net premium received
• Max Loss Condition: Price falls below long strike price

Conclusion

Bull put spreads can be an effective way to earn premiums, often with minimal risks.

However, when loss conditions approach, adjusting your trade as necessary would be best.

While minimal in probabilities, a bull put's loss can be substantial in dollar value. By using Barchart's Bull Put Options Screener and supplementing your trading knowledge through the Options Learning Center, you'll be well on your way to more profitable trading.