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Put bull spreads and application introduction

@OptionsTutor
A bull spread consists of a buy leg and a sell leg of different strikes for the same expiration and same underlying contract. This strategy will pay off in a rising market, also known as a bull market, that is why it is referred to as a bull spread. Bull spreads can be constructed from either going long a call spread or going short a put spread. Put Bull Spreads Bull spreads can be constructed from selling a put spread. Selling a put allows you to collect a premium that you can keep if the underlying futures contract finishes at or above the strike price. A trader believes that the market will have a moderate rise before the options expire. If the underlying market was trading at 100, we can sell the 110-105 put spread. This would entail selling the 110 puts and buying the 105 puts which would result in a $4 credit with the underlying future trading at 100 The breakeven point for the spread is 106, the 110 strike minus the spread credit of $4. This is the same breakeven point as the call bull spread. If the market finishes above 110, the puts expire worthless. Therefore, the trader keeps the $4 he received by selling the put. If the market finishes at 103, the 110 put is worth $7 and the 105 put is worth $2. Therefore, the put spread is worth $5 dollars. The trader received $4, and must now payout $5, resulting in a $1 loss. If the market finishes at 107.5, the 110 put is worth $2.50 and the 105 put expires worthless. The trader must pay out $2.50 from his $4 credit. Resulting in a $1.50 profit. We can see in this chart, that these three scenarios have the same outcome whether we buy a call spread or sell a put spread to create a bullish position. Traders still want the market to finish above the high strike of the spread. Example Take Berkshire's stake in $HP Inc(HPQ)$ . In its latest 13F disclosure, Berkshire increased its stake in HP by 16%. Buffett's Berkshire Hathaway now owns 12 percent of HP's outstanding shares, making it one of Berkshire Hathaway's 10 largest holdings. HP trades at just 8.8 times forward earnings, a steep discount to the S&P 500's 18.7 times, and has a price-to-sales ratio of just 0.5 over the past 12 months. As a value stock, HP is cheap and lacks exciting growth prospects, but its price is stable and its range is well-defined, making it suitable for spread trading. Select the price range of $29 to $27 according to the 250 moving average to conduct spread strategy trading: sell $HPQ 20230609 29.0 PUT$ buy $HPQ 20230609 27.0 PUT$ As shown in the figure, if the stock price reaches more than $28.73 on June 9, it will be profitable, and the portfolio with the stock price above $30 will gain the maximum profit of $27. After the option portfolio is formed, the estimated margin is only $200.
Put bull spreads and application introduction

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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