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).
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当期权交易者认为标的资产价格将在短期内温和上涨时，采用牛市看跌价差期权交易策略。牛市看跌价差期权策略也称为牛市看跌贷方价差（credit spread)，因为在进入期权交易时会收到期权金（credits)。
牛市看跌期权套利：其交易方式是指在买进一个执行价格较低的看跌期权的同时，卖出一个到期日相同、但是执行价格较高的看跌期权，可以先收权利金，适合波动率高的情况。
当期权交易者认为标的证券的价格会在看跌期权到期之前上涨时，使用垂直牛市看跌价差，或简称为牛市看跌价差。
Bullish Put Spread Strategy 牛市看跌价差可以通过卖出较高行权的价内看跌期权并买入相同到期日的相同标的股票较低行权的价外看跌期权来实现。
如果股票价格在到期日收盘价高于较高的执行价格，则两个期权到期时都毫无价值，牛市看跌价差期权策略获得的最大利润等于进入头寸时获得的期权金。
A bullish put spread should be considered in the following situations:
To earn premium income: This strategy is ideal when the trader or investor wishes to earn premium income, but with a lower degree of risk than through writing puts only.
To buy a stock at a lower price: A bull put spread is a good way to buy a desired stock at an effective price that is lower than its current market price.
To capitalize on sideways to marginally higher markets: Put writing and bull put spreads are optimal strategies for markets and stocks that are trading sideways to marginally higher. Other bullish strategies, such as buying calls or initiating bull call spreads, would not work as well in such markets.
To generate income in choppy markets: Put writing is risky business when markets slide because of the greater risk of being assigned stocks at needlessly high prices. A bull put spread may enable puts to be written even in such markets by capping downside risk.
A bullish put spread consists of one short put with a higher strike price and one long put with a lower strike price. Both puts have the same underlying stock and the same expiration date. A bull put spread is established for a net credit (or net amount received) and profits from either a rising stock price or from time erosion or from both. Potential profit is limited to the net premium received less commissions and potential loss is limited if the stock price falls below the strike price of the long put.
Potential profit is limited to the net premium received less commissions, and this profit is realized if the stock price is at or above the strike price of the short put (higher strike) at expiration and both puts expire worthless.
Consider using a bullish put spread strategy to earn premium income in sideways to marginally higher markets, or to buy stocks at reduced prices when markets are choppy. Buying stocks at reduced prices is possible because the written put may be exercised to buy the stock at the strike price, but because a credit was received, this reduces the cost of buying the shares (compared to if the shares were bought at the strike price directly).
This strategy is especially appropriate to accumulate high-quality stocks at cheap prices when there is a sudden bout of volatility but the underlying trend is still upward. A bullish put spread strategy is akin to “buying the dips,” with the added bonus of receiving premium income in the bargain.
A bullish put spread strategy is writing a put option, and simultaneously purchasing another put option with the same expiration date but a lower strike price. Since this is a credit spread, the maximum gain is restricted to the net premium received for the position, while the maximum loss is equal to the difference in the strike prices of the puts less the net premium received.
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