Bull Put Spread: A Defined-Risk Bullish Credit Spread

What is a bull put spread?

A bull put spread (also called a short put spread or put credit spread) is a defined-risk options strategy built from two puts in the same expiry: you sell one put at a higher strike and simultaneously buy one put at a lower strike. Because the put you sell is more expensive than the put you buy, the combined position opens for a net credit — cash received up front.

The strategy expresses a mildly bullish-to-neutral view. You are not betting on a big rally; you are positioning for the index to stay above the higher (sold) strike through expiry, so both puts can expire worthless and you keep the credit. The bought lower-strike put is purely protective — it caps what you can lose if the index falls hard, which is what makes this a defined-risk structure rather than a naked short put.

This is general educational information about how the payoff works, not investment advice and not a suggestion to place any trade.

The legs: exact structure

A bull put spread on NIFTY or SENSEX always has two put legs in the same expiry and the same lot size:

• SELL 1 higher-strike put (PE) — the short leg that generates most of the premium and defines your profit zone.
• BUY 1 lower-strike put (PE) — the long leg, further out-of-the-money, that caps your downside.
• Both legs use the same expiry (weekly or monthly) and the same quantity. NIFTY lot size is 75; SENSEX lot size is 20.
• The wider the gap between the two strikes, the larger both the potential credit and the potential loss.

When traders use it

Traders typically reach for a bull put spread when they hold a mildly bullish or range-bound view and want defined risk rather than the unlimited downside of a naked short put. Selling puts below the current index level lets the position profit from time passing and from the index simply not falling, while the long put keeps a worst-case loss known in advance.

It is also used as a higher-probability alternative to buying a call outright: instead of needing the index to rise, you only need it to hold above the sold strike. The trade-off is that profit is capped at the credit collected — you give up large upside in exchange for a wider margin of error and a known maximum loss.

Strike selection drives the risk/reward: strikes closer to the current price collect more credit but sit closer to a loss, while strikes further out-of-the-money are safer but pay less. None of this is a recommendation — strike choice depends entirely on your own view and risk tolerance.

Max profit, max loss & breakeven

All three outcomes are fixed the moment you open the spread. The formulas (per share; multiply by lot size for the rupee figure):

• Net credit = premium received on the sold put − premium paid on the bought put.
• Max profit = net credit × lot size. Realised if the index closes at or above the higher (sold) strike at expiry, so both puts expire worthless.
• Max loss = (difference between strikes − net credit) × lot size. Realised if the index closes at or below the lower (bought) strike.
• Breakeven = higher strike − net credit. Above this level at expiry the position is net positive; below it, net negative.

Illustrative NIFTY example (hypothetical)

This is a clearly hypothetical illustration of the payoff mechanics only — not a real, typical, or expected result. Suppose NIFTY is near 24,000 and you build a bull put spread one expiry out:

Sell the 23,800 PE at ₹120 and buy the 23,600 PE at ₹70. Net credit = 120 − 70 = ₹50 per share. With the NIFTY lot of 75:

Max profit = ₹50 × 75 = ₹3,750 — kept if NIFTY closes at or above 23,800 at expiry (both puts expire worthless). Strike difference = 23,800 − 23,600 = 200. Max loss = (200 − 50) × 75 = ₹150 × 75 = ₹11,250 — incurred if NIFTY closes at or below 23,600. Breakeven = 23,800 − 50 = 23,750. Note the asymmetry: a credit spread risks more than it can make, in exchange for a wider zone of being right. You can plug these exact strikes into the free payoff builder to see the shape.

On SENSEX the mechanics are identical but the lot size is 20, so each ₹1 of net credit is worth ₹20 per lot.

Payoff shape, Greeks & time decay

The payoff diagram is a flat profit plateau (the net credit) above the higher strike, sloping down to a flat loss floor below the lower strike — a mirror image of the bear put spread. You can visualise any version of it for free in the Algoshastra options strategy builder, which plots max profit, max loss and breakeven for credit and debit structures alike.

On the Greeks: a bull put spread is net positive delta (it benefits from the index rising or holding) and net positive theta — time decay works in your favour, since you are a net seller of premium and the spread is profitable if nothing happens. It is generally net short vega, so a drop in implied volatility tends to help and a spike tends to hurt while the position is open. These effects are strongest when the index sits near the short strike and fade as expiry approaches and the outcome becomes more certain.

Can you backtest this on Algoshastra?

Not yet for this structure. Algoshastra's Shastra backtester currently models long-option strategies on real historical NIFTY and SENSEX options data. A bull put spread has a sold leg (the short higher-strike put), and short-premium plus margin modelling is on the roadmap — so you cannot yet get a historical backtest of a bull put spread inside Shastra.

What you can do today, for free: open the in-browser options strategy builder, enter both put legs, and instantly see the payoff at expiry — max profit, max loss and breakeven — for your chosen strikes. Algoshastra is a strategy-verification platform, is not SEBI-registered, and offers no live-money trading. Everything here is educational mechanics, general information and not investment advice.