April 22, 2012 9:51 pm

Weekly Option Strategies: Bull Put Spread

 
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What happens when the market appears to be bullish? Weekly options, using a bull put spread is a good option strategy to put in play. Trading options, especially if you enjoy weekly options, the bull put spread is a fantastic option strategy to learn. We are looking for either range bound or bullish movement in our stock to really utilize this option spread.

Imagine selling a put option with the strike price out-of-the-money (OTM) and then buying another put option just farther (OTM) to protect the one you sold. Because you bought a put option at a higher strike price, it is not as expensive as the one you sold and you immediately get a credit. This particular option strategy allows you to get your profit upfront and is well designed to utilize with weekly options.

As the market trends the way you want it to go, meaning the market is either range bound or rising, the put options expire worthless and you keep the credit as your profit on the trade. If the stock trend is down, then you will break even point is the lower strike price plus the credit you received. This option strategy offers incredible income potential on weekly options if done correctly. But one’s maximum loss is the difference between the strike prices minus the credit received.

The bull put spread is an option spread that is classified as a “Credit Spread” because your profit is given up front. What you received up front is your maximum profit. Since a weekly option here is best executed on a short term basis, the weekly options offer an opportunity to create a weekly income. Not only is this a good opportunity for income, but time decay can and should work for you here. With the short term period of this weekly option play we want the stock to either barely move or move upward. If this happens, our weekly option will continue to erode day by day and work in your favor.

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Disclaimer: The risk of loss in trading any financial vehicles such as securities, options, futures and forex can be substantial. Members must consider all relevant risk factors, including their own individual financial situation, before going into trading. Options involve risk (as in trading with any other channels) and are not suitable for all investors. See Characteristics and Risks of Standardized Options. Past results of any individual trader or trading system published by us are not indicative of future returns by that trader or system, and are not indicative of guaranteed future returns which may be realized by members.

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