1
Bull put spread
Sell a higher-strike put and buy a lower-strike put with the same expiration.
Lesson · Options Trading
Vertical Credit Spreads
Construct bull put and bear call credit spreads, calculate net credit, fixed maximum profit, defined maximum loss, breakeven, and the protection supplied by the long leg.
Synthetic educational examples
Core concepts
Sell one option, buy a further one: a credit now, a defined worst case.
2
Bear call spread
Sell a lower-strike call and buy a higher-strike call with the same expiration.
3
Defined risk
Maximum profit is the credit; maximum loss is strike width minus credit at expiration.
Worked example
The default bull put spread: short the 100 put at $4.00, long the 90 put at $1.50, one spread, stock $103 at expiration.
1
Net credit: 4.00 − 1.50 = $2.50 per share, $250 received.That is the maximum profit, kept in full if the stock finishes at or above the short strike and both puts expire worthless.
2
Width: 100 − 90 = $10. Maximum loss: (10 − 2.50) × 100 = $750.Reached at or below the long strike, where the short put costs $10 more than the long put pays and the credit offsets $2.50 of it.
3
Breakeven: 100 − 2.50 = $97.50.The short strike less the net credit — below it, on the short strike’s side. The long strike marks the maximum loss, not the breakeven.
4
At $95: short put costs $5, long put worth $0, plus the $2.50 credit = −$2.50 per share, −$250.The purple line, the short put alone, is at −$1.00 here: $4.00 − $5. The long leg costs $1.50 for the protection that only matters below $90.
Interactive lesson
Set the two strikes and premiums, then an expiration price; the legs, credit, breakeven and outcome follow.
Defined-risk credit spreadUnprotected short option
Build a credit spread
The spread receives limited premium in exchange for a larger but defined adverse outcome.
1
Choose direction and range
Bull put spreads require price to remain above a threshold; bear call spreads require price to remain below.
2
Place the short strike
The short strike defines the main obligation and breakeven relationship.
3
Buy the protective strike
The long leg caps loss beyond its strike.
4
Compare reward with maximum loss
Do not evaluate win rate without the credit-to-risk relationship and tail outcomes.
Credit-spread calculations
Score 0 / 0Choose the best answer.
Lesson rule
Change the inputs, calculate the result, and explain the risk before selecting a contract.
Common mistakes
1
Focusing only on probability of profitFrequent small wins can be offset by larger maximum losses.
2
Letting the spread expire near a short strikeAfter-hours movement and exercise decisions can leave mismatched legs or shares.
3
Assuming defined risk means no managementLiquidity, assignment, and gap risk still affect real outcomes.
4
Expecting the full credit as soon as the stock is past the short strikeThe chart is the expiration payoff. Weeks earlier the short leg still carries extrinsic value, so closing the spread costs part of the credit until that value has run out.
Completion standard
✓
Finish when you can build either credit spread and compute the credit, breakeven, maximum profit and maximum loss from the two strikes and two premiums.
The drill asks for each figure separately; the breakeven sits on the short strike’s side, not the long strike’s.
Model scope: Theoretical values use a simplified European Black–Scholes model with a fixed 4.5% annual rate and no dividend input, so a number here can be reproduced in any calculator that takes those inputs. Listed products, early exercise, dividends, spreads, fees, and market conditions can produce different prices and outcomes.