Vertical Spread- Part 2

The remaining two spread are explained below.

• Bull Put Spread:
• Buying one Put option and selling another of higher strike price.
• It's a credit spread.
• Moderately Bullish Strategy.
• Maximum Profit : Net Premium received
• Maximum Loss: Difference between two strike price (-) Net received
• Breakeven Point: higher strike price (-) Net credit received
• Profit: when closing of underlying stock is out-of-the-money.

Example:

Apple 495/500 Spread

Buy 1 lot Apple Mar 495 Put @ $17

Sell 1 lot Apple Mar 500 Put @ $19

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Net Credit: $2 (19-17)

Maximum Profit: $2 ie 200 (2*100)

Maximum loss: $3 ie 300 (3*100)

Breakeven Point: $498 (500-2)

• Bear Put Spread:
• Buying one Put option and selling another of lower strike price.
• It's a debit spread.
• Moderately Bearish Strategy.
• Maximum Profit : Difference between two strike price (-) Net debit
• Maximum Loss: Net Premium paid
• Breakeven Point: higher strike price (-) Net debit
• Profit: when closing of underlying stock partially is in-the-money.

Example:

Apple 4505/500 Spread

Buy 1 lot Apple Mar 505 Put @ $22

Sell 1 lot Apple Mar 500 Put @ $19

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Net Debit: $3 (22-19)

Maximum Profit: $2 ie 200 (2*100)

Maximum loss: $3 ie 300 (3*100)

Breakeven Point: $502 (505-3)