Bull Put Spread

A bull put spread is a type of trading strategy used when trading in options. The trader believes that a particular security will go up a moderate amount in the near-term, so he or she purchases one put option, and at the same time sells another put option with the same expiration month, but with a higher strike price (the price at which an option can be exercised).

Example. XYZ stock is trading at $70 per share. Since the investor doesn’t have the dough (or the "re" or the "mi") to purchase shares of the stock, he or she decides to do a bull put spread. The investor writes a put option with a strike price of $75, and at the same time purchases a put option with a strike price of $65. Both expire in three weeks. Their investment’s maximum profit is limited as well as its loss, once the stock closes above $70. The short options will expire as worthless, with the investor keeping the premium.