If you have spent sufficient time in the stock market definitely you know the importance of the following right trading strategy. Because without following backtested trading strategies, you will be sailing over the sinking boat.
Bull put spread or bull put credit strategy is the option strategy followed by the traders and investor when they think the price of underlying assets will increase moderately. In bull put spread option strategy, credit is received upon entering the trade.
In this strategy, the trader buys a one put option while simultaneously selling another put option with the higher price. High striking in-the-money put option is sold by traders and the low out-of-the-money option is purchased by the trades.
Stock Trading strategies which include the buying an option at the lower strike price and selling another at higher stake price is known as the credit spread. Because the amount received by selling the option at higher strike price is enough to compensate the losses of the purchase.
Risks are limited in the bull put spread strategies as well as limited upside profit. If the price of stocks closes above the higher strike price on expiration date, both options expire worthless that allows investors to earn the maximum which is equal to credit taken when entering the position.
Difference between the money received from the short put and money used to pay for the long put is equal to the maximum profit for the traders. In bull put credit spread strategy profits potential are limited. However, the maximum loss trader can suffer is the difference between the strike prices and credit received.
In short, put is exercised; option traders have to buy the underlying stocks at the higher strike price. On the other hand, exercising long put option investor can sell the underlying stocks at the lower strike price.
Without following well-planned trading strategies, the stock market might get tougher for self-directed investors. You can also visit this website to know more about the stock trading strategies.