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Seasoned VeteransNeutral to Bullish
Short Put Spread
Overview
Also called a 'bull put spread' or 'credit put spread'. You sell a put at a higher strike and buy a put at a lower strike for protection. You profit if the stock stays above the short put strike. Like a cash-secured put but with defined risk.
Max Profit
Net premium received
Max Loss
Difference between strikes - Net premium received
Breakeven
Higher strike - Net premium received
Structure
Short 1 higher-strike Put + Long 1 lower-strike Put (same expiry)
Risk Profile
Limited profit (premium). Limited, defined risk.
When to Use
When you expect the stock to stay flat or rise. When you want defined-risk income generation. Popular as an alternative to cash-secured puts.