Bull Put spreads

Discussion in 'Options' started by rockthecasbah12, Mar 3, 2010.

  1. Anyone here trade bull put spreads? I'm new to it. I virtual traded for awhile on a practice account and am about to get into it with real money, albeit very small amounts to begin with.

    Any successes or failures?
  2. Bull put spreads covers a lot of territory:


    Next month, near term, Far in the future??

    why are you doing it?

    Speculation, income?
  3. Way out of the money for income. Anywhere from 15 days to six weeks til expirtion.
  4. How do you hedge your downside?
  5. Basically I don't.

    My first trade was ITMN. I sold 7.50 puts for .55 and bought 5 puts at .15. There's considerable downside risk, but my goal is to pick trades where the stock would almost have to lose 50% of its value in order for my options to be in the money.
  6. It's a "safer" way to start out trading instead of doing outrights. You'll tend to earn and lose money slowly and "experience" the quirks of the option's greek variables. :cool:

  7. Well, if you are here long enough you will eventually hear "nickels in front of a steamroller" and other comments about selling otm premie. But if you have some sort of edge picking stocks that will not fall off the cliff/at least be stable, you'll win.

    Careful with those biotechs though. Imagine an OTM Bull Put on MDVN? roflcopter :eek:
  8. FWIW, do not fall in love with one type of spread. It is like the proverbial round peg/square hole situation. You need to know your greeks, have an opinion on direction of the underlying, and have an opinion on the direction of the volatility. Bull put spreads do well when placed at volatility tops and exited when volatility crunches. Typically, the underlying goes up--favorable direction--but your bull put spread will make money even if the underlying doesn't move. As mentioned above, which short leg and which long leg do you use (OTM, ATM, near-term, far term, etc)? At what strikes do you place your legs? How far apart are the legs? Do you plan to exit early once a certain amount of profit is realized? Risk/reward ratio? Lots to consider, believe me.

    Let's use the current situation with the s&p 500 index options. I would be hesitant to use the bull put spread here because: 1) volatility is low. I would expect a pop soon in the volatility and that would be a time to look at placing your bull put spread. 2) the index is rising. I would want to place bull put spreads as the market is dipping. If you are patient and wait for your opportunity, you will eliminate many losing trades using this spread. Placing FOTM spreads may look good, but their values jump when volatility jumps, for their IV's are higher. You gotta place your protective leg carefully, and have a mental stop..you do not have to hold these until expiration. JMHO and $.02
  9. I'm not looking to get rich quick. Basically, I've been building a stock portfolio over the last two years, and I believe right now is a silly time to buy. I think most stocks have little growth room currently, and I also am worried about a double dip. I built most of my portfolio right after the crash on monthly dividend paying stocks yielding over 20% at the time.

    Now, I am looking for option strategies that provide income during neutral markets basically. I originally looked at trading iron condors and iron butterflies, but wasn't satisfied with either of them. I think just trading the put side of the iron condor is more my style. I was just wondering if anyone else commonly does this. I wanted to know what to look out for, what possible mistakes I could make that could screw up my trade, things like that.

    You mentioned the greeks, which I only have little experience with so far from my schooling. I'm going to have to do some more research on those, as I know they are very important to option trading.

    What does anyone think about my ITMN trade? I feel as if it is pretty safe currently, and the credit is still well worth the risk.
  10. Don't know if there is an upcoming announcement for ITMN but you should know the dates, even the speculation dates on the Yahoo message boards, like the back of your hand. Only thing is, it'll probably open gap down giving no time to hedge if it's a failed trial or whathaveyou. Again, MDVN.
    #10     Mar 3, 2010