If you are
feeling generally positive about a stock, bull spreads offer a low risk, low
return strategy. One way to create a bull put spread is by using puts at or near
the current market price.
Example:
If you had a bullish short term feeling about Wal Mart (WMT) while it was
trading at $54.14 you might create a bull put spread by selling the $55 Put at
$2.55 and buying the $50 Put for $0.85.
The
maximum profit would be $170 (($2.55 – $0.85) x 100), while the most you stand
to lose is $330 (($55 – $50 – $1.7) x 100).
Using ShareCharts
Option Strategies for Bull Put Spreads the entire transaction can be seen
clearly. Go to Derivatives < Option Strategies and select Bull put Spread
from the ‘Strategy’ Drop Down Box. Enter in all relevant parameters and
click ‘Update’ to view the chart.