The market continues to remain bullish and today I’ve got three short-term bull put spread ideas to consider.
To execute a bull put spread, an investor would sell a naked put and then buy a further out-of-the-money put to create a spread.
A bull put spread is considered less risky than a naked put, because the losses are capped thanks to the bought put.
The following trades are short-term and high risk, so should only be considered by experienced option traders.
NVDA Bull Put Spread Example
Selling the March 8th put with a strike price of $730 and buying the $725 put would create a bull put spread.
This spread was trading yesterday for around $0.70. That means a trader selling this spread would receive $70 in option premium and would have a maximum risk of $430.
That represents an 16% return on risk between now and March 8th if NVDA stock remains above $730.
If Nvidia (NVDA) stock closes below $725 on the expiration date the trade loses the full $430.
The breakeven point for the bull put spread is $729.30 which is calculated as $730 less the $0.70 option premium per contract.
In terms of a stop loss, if the stock dropped below $750, I would consider closing early for a loss.
AAPL Bull Put Spread Example
Selling the April 21 put with a strike price of $177.50 and buying the $172.50 put would create a bull put spread.
This spread was trading yesterday for around $0.70. That means a trader selling this spread would receive $70 in option premium and would have a maximum risk of $430.
That also represents a 16% return on risk between now and March 8th if AAPL stock remains above $177.50.
If Apple (AAPL) stock closes below $172.50 on the expiration date the trade loses the full $430.
The breakeven point for the bull put spread is $176.80 which is calculated as $177.50 less the $0.70 option premium per contract.
In terms of a stop loss, if the stock dropped below 177.50, I would consider closing early for a loss.
MSFT Bull Put Spread Example
Selling the March 8th put with a strike price of $395 and buying the $390 put would create a bull put spread.
This spread was trading yesterday for around $0.55. That means a trader selling this spread would receive $55 in option premium and would have a maximum risk of $445.
That represents a 12.36% return on risk between now and March 8th if MSFT stock remains above $395.
If Microsoft (MSFT) stock closes below $390 on the expiration date the trade loses the full $445.
The breakeven point for the bull put spread is $394.45 which is calculated as $395 less the 0.55 option premium per contract.
In terms of a stop loss, if the stock dropped below 400, I would consider closing early for a loss.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
