Bull Put Spread for Income: Step-by-Step Guide

Summary

The bull put spread is one of the most popular income strategies in options trading. You sell a put at a higher strike and buy a protective put at a lower strike, collecting a net credit that becomes profit if the stock stays above your short strike. This guide walks through the complete process from screening to exit.

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Selling bull put spreads is the bread-and-butter strategy for options income traders. You get paid upfront, time decay works in your favor, and you don't need the stock to go up—it just needs to not go down too much. When done systematically, it creates a steady income stream with defined risk on every trade.

Step 1: Screen for Candidates

Look for stocks or ETFs that meet these criteria:

  • Neutral to bullish trend. The stock should be in an uptrend or moving sideways. Selling put spreads on downtrending stocks is fighting the current.
  • Liquid options. Bid-ask spreads should be $0.05 or less on the strikes you're targeting. SPY, QQQ, AAPL, MSFT, AMZN are reliable choices.
  • Elevated implied volatility. Higher IV means richer premiums. Look for IV rank above 30 (meaning IV is higher than 30% of its readings over the past year).

    • Step 2: Select Expiration

    30-45 days to expiration is the sweet spot. Theta decay accelerates in this window, meaning time erosion benefits you the most per day. Shorter expirations (7-14 days) offer faster trades but less premium and more gamma risk. Longer expirations (60+ days) tie up capital longer than necessary.

    Step 3: Choose Your Strikes

    Short put (the one you sell): Select the 20-30 delta strike. This gives you a 70-80% probability of the option expiring worthless.

    Long put (the one you buy): Place it $5-$10 below the short put, depending on the stock price. This defines your max risk.

    Example on SPY at $540:

  • Sell the $520 put (22 delta) for $4.20
  • Buy the $510 put (15 delta) for $2.50
  • Net credit: $1.70 ($170 per contract)
  • Max risk: $10.00 - $1.70 = $8.30 ($830 per contract)
  • Return on risk: $170 / $830 = 20.5%

    • Step 4: Size Your Position

    Never risk more than 2-5% of your account on a single spread. With a $50,000 account and 3% risk tolerance:

  • Max risk per trade = $1,500
  • Each spread risks $830
  • Position size = 1 contract (with room to spare)

    • If you want to run multiple spreads simultaneously, allocate across different underlyings to diversify.

    Step 5: Manage the Trade

    Target exit: 50% of max profit. When the spread's value drops to $0.85 (half of the $1.70 you collected), close it. You've captured $85 per contract in profit. This typically happens in 15-25 days, well before expiration.

    Why close at 50%? Holding to expiration risks the stock making a late move against you. The last $0.85 of profit takes as long (or longer) to capture than the first $0.85, but carries more risk. Close early, redeploy capital.

    Stop loss: Close at 2x the credit received. If the spread's value doubles to $3.40, the trade has moved significantly against you. Close and reassess. The stock may have broken through your short strike or the overall market shifted.

    Step 6: Repeat the Process

    After closing a profitable trade, look for the next opportunity. Consistency matters more than any single trade. Over a year of selling 50% probability trades:

  • Expect to win roughly 70-80% of the time
  • Wins average around $85-$100 per contract
  • Losses average around $200-$400 per contract
  • Net expectancy should be positive if you're disciplined about entries

    • Avoiding Common Pitfalls

    Don't chase premium. If the only way to get decent credit is selling the 40 delta strike, the risk-reward isn't favorable. Wait for better setups.

    Don't ignore earnings. Selling put spreads through an earnings announcement adds significant gap risk. Either close before earnings or wait until after.

    Don't overtrade. Having 10 bull put spreads on simultaneously in a bull market feels great—until a 3% market drop puts all 10 underwater at once. Diversify your timing and underlyings.

    OptionsPilot's strike finder ranks put strikes by premium yield and probability of profit, making it easy to find the optimal short strike for your income targets. You can filter by delta range to stay within your preferred probability zone.