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Generate Income Trade Options 
The Bull Put Spread is one of the easiest spreads to understand, yet it is one of the most profitable option trades. As we know a spread trade can always be better than a lame outright option trade!
The Bull Put Spread option strategy, is a vertical spread and consists of two legs, (it requires two option trades), and even though we are dealing with Put options, we are in fact bullish on the stock. Because overall we expect to profit from a price drop and be in the market as option sellers!
The objective of the Bull Put Spread is to profit from small to moderate underlying stock price movement, which is quite interesting since we can often identify stocks that will almost certainly move higher.
Choosing a stock, to use in implementing the Bull Put Spread
Generally, we are looking for medium to highly priced stocks, that have the potential to go either up or down, at least from the marker makers’ perspective… The more risky they view the stock situation the higher the Put options will be priced, and the more premium you will collect as a seller!
Some traders use RSI and MACD, personally I use the CCI indicator, notice the green arrows on CCI. They tell you that a crossover above the -100 line has happened and that the stock has a much, much greater probability to go up than down! Luckily the market makers option pricing software doesn’t know this, or just doesn’t care, it still treats this as a 50-50 probability event, hence offering expensive Put options that we can sell.
So the idea of the Bull Put Spread is to create a vertical spread as follows: (Remember what vertical means: same expiry dates, different strike prices) We find one ITM Put option, that we believe will easily become OTM as the stock rallies, we sell this ITM Put, while at the same time we buy another OTM Put option that is just one or two strike prices lower! The second Put, being OTM will be a lot cheaper!
Example trade:
Suppose that ABC stock trades at $43, and we see the following Put options, June 40 Put going for $100 (OTM), and June 45 Put going for $300 (ITM). As you can see the ITM June 45 Put is 3 times more expensive, but we believe that the technical status of the stock suggests a rally will take place soon, large enough to make June 45 become OTM!
Therefore we sell the June 45, and buy the June 40, so we get paid $300 and spend $100 respectively, the total cost for this Bull Put Spread is $200. And if the stock does rally big, both of these Put options will expire worthless, leaving a net profit of $200!
It doesn’t look impressive on the profit curve picture, and that’s another mistake option traders make, they completely ignore the probability of the trade going well. If done correctly, and by using deep judgement analysis on the charts, the Bull Put Spread can have a winning ratio of more than 80%. And as a rule of thumb, I personally don’t wait for more than 3 market days for the stock to make the move, if 3 days pass and the stock doesn’t rally, I’d better off closing the trade at a much smaller loss. But even at the maximum loss of say $300, like in this case, with an 80% success rate it means that you can lose $600, and make $1600 over 10 trades!
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