Options Income
Bull Put Spread
A defined-risk bet that the underlying stays above a line you pick. Sell a put, buy a cheaper one further out of the money to cap the risk, and keep the credit if price never reaches your short strike.
Drag the strikes, then move the curve
The two gold handles are your short put (closer to price) and your long put (further away, the protection you paid for). The pale curve above the payoff line is a rough probability distribution of where the stock could land by expiration. Widen it with the expected-move slider and watch the probability of profit change with it.
Drag the two gold circles · long put (protection) · short put (the one collecting premium)
How it works
- It's a short put with the risk capped underneath. Selling the higher put alone would carry open-ended risk down to zero. Buying the lower put caps how far the loss can go, at the cost of a smaller net credit than selling the put by itself.
- Max profit is the credit, and it's capped at that. If price finishes at or above the short strike, both puts expire worthless and the full credit is kept. There's no additional upside from the stock rallying further.
- Max loss is the width between the strikes, minus the credit. If price finishes at or below the long strike, the loss is capped there no matter how much further the stock falls.
- One breakeven, at the short strike minus the credit. Below that price, the position is a loser by expiration. The probability curve above the payoff line is one way to see how much of the distribution actually sits below that line.
Where this breaks
A high probability of profit still means real losers, and they're bigger than the wins
Push the short strike further from the current price and the probability of profit climbs, but the credit collected shrinks along with it, while the max loss on the strikes that do get breached stays close to full width. A trade that wins 85% of the time with a max loss several times the size of the credit can still lose money over a long run of trades if the sizing doesn't account for that asymmetry. The probability curve above tells you how often you're likely to win, not how much a loss costs when it happens.