3.2Profit Strategy for Small Fluctuations - Practical Application of Vertical Spread Strategy

Hello

Today, let's talk about the second sub-strategy of the vertical spread strategy: Bullish Put Spread Strategy

1.2 Bullish Put Spread Strategy

The bullish Put Spread strategy involves buying a lower strike put option and simultaneously selling a higher strike put option. This strategy is suitable when you anticipate a slight increase in the stock price in the future. It allows you to earn premium income while limiting the maximum potential loss in case of a price decrease.

For example: Apple's current stock price is around $184. We anticipate that after one month, on September 1st, the stock price will rise slightly to around $190, and we can utilize the Bullish Put Spread strategy. First, we buy a put option with a strike price of $185, paying a premium of $1.64. At the same time, we sell a put option with a strike price of $190, receiving a premium income of $5.25.

If the future stock price aligns with expectations and rises to $190 or higher, the put option with a $185 strike price won't be exercised, resulting in a loss of $1.64. Similarly, the put option with a $190 strike price won't be exercised, and we gain $5.25 in premium income. Consequently, the net profit from this strategy would be $3.61.

If the future stock price drops to $185 or lower, both options would be exercised, resulting in a maximum loss of $1.39 ($190 - $185 - $5.25 + $1.64).

If the stock price falls between $185 and $190, the strategy's profit/loss would range from -$1.39 to $3.61.

How to Implement the Bullish Put Spread Strategy Using an App?

In practice, you can directly match this strategy using an app and calculate the combined profit data through the app. How do you do it?

Continuing from the previous example, click on the strategy section below and select the Vertical Spread Strategy. Modify the default spread to 5 (the spread between the two options, $185 and $190, is 5). This will display all the option portfolios with a spread of 5. You can select the desired put option portfolio. Remember to change "buy" to "sell." After clicking, the app will automatically calculate the portfolio's maximum profit, maximum loss, and profit-loss curve data (considering contract units, all data in practical execution is theoretically multiplied by 100, and it includes transaction costs like fees, so there might be some deviation).