Put Credit Spread Explained (Setup, Trade Examples, & More)
Video Overview & Insights
Learn the Put Credit Spread Options Strategy with in-depth explanations, trade examples, and platform demonstrations.
⚡ Free options strategy calculators & visualizers: https://projectoption.com/calculators
☑ Free 160+ page Options Trading for Beginners PDF and bonus content: https://projectoption.com/free-guide
Check out the resources above to learn more. The free calculators on the site will allow you to visualize P/L for the most popular options strategies and your choice of inputs. It's a great way to learn.
What did you think about this video? Leave comments/thoughts below.
-Chris
📩 Free Weekly Options Newsletter → Get my 160+ page Options Trading for Beginners PDF, bonus guides, AND exclusive weekly trade ideas & setups delivered to your inbox: https://projectoption.com/free-guide
⚡ Model any options trade before you place it → visualize P&L, Greeks, and "what-if" scenarios: https://projectoption.com
Great explanation thank you 👍
💥 My video course on the best options strategies I've found from analyzing 18 years of market data: https://projectoption.com/data-driven-options-strategies
☑️ Open and fund a tastytrade account and get $296 worth of options trading resources and tools: https://projectoption.com/tastytrade
Your explanation is perfect
==== Chapters ====
0:00 Intro (Video PDF Download in Description)
Is there a link for a class from you? Im starting to learn about put crdit spreads to strart off with little money
0:47 What is the Put Credit Spread Strategy?
1:37 Max Profit & Max Loss Explained
At around 36 days, when the stock price goes down the green line should go up. why did it go down?
2:32 Put Credit Spread Risk Graph
5:20 When to Enter Put Credit Spreads? (Profitable Trade Example)
Not sure why you never talk about if stock price ends between the two strike prices
10:04 Short Put vs. Put Spread Risk Comparison
11:18 Why a Spread's Maximum Value is the Width of the Strikes?
great video , sir
12:50 Exercise & Assignment: In-the-Money Spread at Expiration
14:15 Strike Price Selection & Risk/Reward Analysis
thanks Chris excellent explantion
19:10 Put Spread Setup for Small Accounts
19:47 Closing Trades Before Expiration
In your example - If the stock at expiration close at 187, then long put @ 185 will be worthless however I will be assigned the short put at 190. How would that work if I hold the spread through expiration and stock closes btw spread. I would appreciate a prompt response since I am in this situation with TQQQ right now :). Thanks for this awesome video.
21:55 Leave Questions/Comments Below!
=== Recommended Videos ===
What if on expiry , the stock price is in between the SHORT PUT and LONG PUT strike prices ?
➥ Options Trading for Beginners: https://youtu.be/7PM4rNDr4oI
➥ How to Understand Option Prices SIMPLY: https://youtu.be/djYyfQ6Ekkg
Hello Chris, your videos are great, I have not seen you releasing more lately, all good?
➥ Vertical Spreads for Beginners: https://youtu.be/mwttDWfDQ9c
➥ Selling Put Options for Monthly Income: https://youtu.be/DyLksGs4KCA
Is there any chance of assigning the option ??
===== Summary =====
In this video, we'll walk through the put credit spread options strategy. Other strategy names: the bull put spread, short put spread, or selling a put spread.
I have heard other people try to explain this strategy before and I just walked away scratching my head because it was so complicated and hard to explain. You however, did an excellent job explaining with your charts and graphs exactly what goes on with a put credit spread. Thank you
The strategy is constructed by shorting a put option and then buying another put option at a lower strike price and in the same expiration cycle.
The bull put spread has limited risk, which is the (width of the strikes - the entry credit) x 100. The strategy also has limited profit potential, which is the premium collected at entry (spread sale price x 100).
You never discussed the DTE? How far out and why.
The strategy makes money so long as the stock price remains above the short put strike price, and loses money if the stock price decreases. It doesn't matter if the stock price is slightly below the spread or zero at expiration, the loss potential is the same.
Because of this, a put credit spread has significantly lower risk compared to selling naked put options. It's also a much more suitable strategy for small accounts due to the low-risk nature of selling narrow spreads (like a $1-wide spread).
Longing a put is buying. Short is selling.
In the video, I walk through numerous trade examples in IWM, and do a walkthrough of strike price selection and risk/reward analysis on tastytrade.
Watch the video all the way through to learn these key concepts quickly, and hopefully effectively with the explanations and accompanying visuals.
I need help. I purchased a put credit spread on ticker O
Sell to open $7.13
Buy to open $2.35
My average is $4.78
At close Friday O dropped down, an the option is saying current price $4.55 and Robinhood is showing my total return at positive $23.
Full disclosure, I bought this CSP and I think I only knew a little about CSP's.
My question is, how do I exit this trade profitably? There are many confusing data points on CSP, sometimes it seems as if Robinhood is saying I'm in actual profit, like right now when my average of $4.78 is above $4.55. It says +$23. Can I exit now and make $23, or would I still end up losing money. Why does RH say my break even price is $62.72 and O current price is $60.37? Is there a relevance to my break even price of $62.72?
Thanks so much.
=======
Disclaimer: Nothing contained in our content constitutes a solicitation, recommendation, promotion, or endorsement of any particular security, other investment product, transaction, or investment. Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involve substantial risk of loss and are not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time. Past performance is not necessarily indicative of future results. I am not a financial advisor. The ideas presented in this video are for entertainment purposes only. You (and only you) are responsible for the financial decisions that you make.
Disclosure: Some of the links in the video description are affiliate links, which means I receive a small amount of compensation if you sign up for these services using my unique link. If you want to support the channel, it's a great way to say thank you! You can always head directly to the websites mentioned in the videos to avoid giving affiliate credit, but you may miss a signup bonus.
#OptionsTrading
I wish I could give you more than 1 like. Thanks
tastytrade, Inc. (“tastytrade”) has entered into a Marketing Agreement with Project Finance(Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade and/or any of its affiliated companies. Neither tastytrade nor any of its affiliated companies is responsible for the privacy practices of Marketing Agent or this website. tastytrade does not warrant the accuracy or content of the products or services offered by Marketing Agent or this website. Marketing Agent is independent and is not an affiliate of tastytrade.
What happens if the expiration price ends up between your short and long prices?
More User Perspectives
The scenario you didn't cover is if the strike expires between the short put and the long put. Wouldn't that mean that the broker would temporarily make u own shares, hence a margin call on a small account?
@moru2222Hi. That was by far the clearest explanation of Bull or Put Credit Spreads! Thanks!!
@OK-rk8soMechanics are clear but how do you know when to put one on? Do you just use TA?
@elonmusknewsnetworkGd job Chris..lot of conceptual info but well explained..thnx
@kssandhu4693If the trade goes against you, and you buy it back, do you lose the original credit?
@jeremyjohnson2107Are you ever checking Greeks? How do you know what strike to select?
@sueaksay1946This is the best explanation of ‘bull put spreads’ Ive listened to! Thanks so much!
@MD-gk9osDefinitely appreciate the video. Very informative as always. When you talk about allotting a certain percentage of your portfolio to a trade are you referring to the cash portion of your portfolio or your entire portfolio, long positions of stocks included? Thanks very much.
@thomaskoeppel6506amazing content! Given you clearly have extensive experience trading options, do you still use this strategy?
@HenrySchade-x5gIf you have a max loss of for example 200 dollars than why does it tell you after you open the position that you have for example a 1000 loss and a 200 gain if it's a put credit spread and it went below both the strike prices. Why don't they just say we lost 100 then 150 then 200 of our max loss? And no one on YouTube talks about or shows us the positions after they are made. Like trade a credit spread on anything but Robinhood and show us what the cost basis and market value and the important things that scare new investors. I sold a put and it took a while to figure out what cost basis and market value meant and open p/l and unrealized p/l. They don't make explain after you open a position what it means to manage a position and make sure you are not losing.
@kira8267good example and work through of scaling the trade via qty of contracts versus the wider spread
@silverBullAUGreat video! Question though: if one of the spreads got early assignment, will RH automatically close the whole spread automatically? Thanks
@TeatokChineseWellnessthanks for the this. this works as a bullish strategy, is there a bearish spread play also?
@jennf7593Well explained
@DetailingBreakdownYour loss will be a little more if you let it expire as you will have assignment fees on top of the trade loss.
Close it right before if you know it is going to deep ITM.
I say for YOU to do that...if I did, it would rocket up in the final hour.
Nice video, is it possible to do something similar but with calls?
@rodrigoorellana341Hi, hope you are well!
Just wondering how likely it is to find a 1/3 in premium?
I'm finding it difficult to find a 1/3 of the width in premium
Thank you ❤
why does no one show in depth info about stop loss with put credit spreads :(....
@Woezxy❤
@hienlyThanks a lot
@OSAJAYIDo you need to close or is it safe to let it go to expiration... good practice to close ... or roll one side ... etc.
@pilsung2fulFantastic mate thank you so much! Would you consider doing another video where you dive deeper into the differences between width of the credit spreads? $1 - $10 wide spreads for example. It make sense that you can keep the width small and just run more contracts but at the same time I would like to see how the commissions would eat into the play.
Thank you once again Chris =)
That simple explanation at the start is honestly the best I've seen so far.
@aurinatorI dont quite understand the end, you say max profit potential has been reached, but you get all the profit upfront when you sell the put. Do you mean the cost closing the trade, ie buying the same put is near zero?
@tom-cz2jxHow do I manage the loss?
@azncoolerThank you! That was a great, clear explanation of the trades. Best explanation I’m found.
@johnaguilar3850❤❤❤❤❤
@abdelaziztouil3630Outstanding, Bravo! I also have a quick question, does trading wider spreads make the spread decay faster like naked/cash secured puts?
@urielaquanis4216When you buy back the credit spread, is it better to buy it back at a lower price than market rate?.....This can be confusing. Just want to confirm before I do something that puts more money into my account
@brianphilip6296thanks for amazing presentation
@kamalboraWhat happends when price is between the put and the call at experation?
@methioswar2916