The stock market is showing some encouraging signs with two bullish candlesticks in a row, and if that continues, bull put spread trades could do well.
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.
INTC Bull Put Spread Example
Intel (INTC) is showing strength and bounced off the 20-day moving average on Monday.
Intel is rated as a Strong Buy according to 11 Analysts with 1 Moderate Buy ratings, 32 Hold ratings and 2 Strong Sell ratings.
Selling the July 17 put with a strike price of $125 and buying the $120 put would create a bull put spread.
This spread was trading for around $1.08 yesterday. That means a trader selling this spread would receive $108 in option premium and would have a maximum risk of $392.
That represents a potential 27.55% return on risk between now and July 17 if INTC stock remains above $125.
If INTC stock closes below $120 on the expiration date the trade loses the full $392.
The breakeven point for the bull put spread is $123.92 which is calculated as $125 less the $1.08 option premium per contract.
In terms of a stop loss, if the stock dropped below $130, I would consider closing early for a loss.
NVDA Bull Put Spread Example
Nvidia (NVDA) stock bounced right off the 200-day moving average on Monday and then rose 2.63% on Tuesday.
Nvidia is rated as a Strong Buy according to 43 Analysts, with 3 Moderate Buy ratings, 2 Hold ratings and 1 Strong Sell rating.
Selling the July 17 put with a strike price of $190 and buying the $1850 put would create a bull put spread.
This spread was trading for around $0.88 yesterday. That means a trader selling this spread would receive $88 in option premium and would have a maximum risk of $412.
That represents a potential 21.36% return on risk between now and July 17 if NVDA stock remains above $190.
If NVDA closes below $185 on the expiration date the trade loses the full $412.
The breakeven point for the bull put spread is $189.12 which is calculated as $190 less the $0.88 option premium per contract.
In terms of a stop loss, if the stock dropped below $195, I would consider closing early for a loss.
HOOD Bull Put Spread Example
Robinhood Markets (HOOD) has put in a series of higher lows and higher highs in recent weeks.
Robinhood is rated as a Strong Buy according to 17 Analysts, with 2 Moderate Buy ratings, 5 Hold ratings and 1 Strong Sell rating.
Selling the July 17 put with a strike price of $93 and buying the $90 put would create a bull put spread.
This spread was trading for around $0.69 yesterday. That means a trader selling this spread would receive $69 in option premium and would have a maximum risk of $231.
That represents a potential 29.87% return on risk between now and July 17 if HOOD stock remains above $93.
If HOOD closes below $90 on the expiration date the trade loses the full $231.
The breakeven point for the bull put spread is $92.31 which is calculated as $93 less the $0.69 option premium per contract.
In terms of a stop loss, if the stock dropped below $95, 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.
