What is the max loss of a Put Credit Spread?

The max loss is Width of the credit spread minus the credit received.

When do I breakeven when utilizing a Put Credit Spread strategy?

The breakeven is defined as Strike Price of the sold (short) Put minus the Premium (credit) received.

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Option Strategies Details

Q: What is the typical application of a Put Credit Spread?

The typical applicatio is: 1. Speculate on a neutral to slightly-increasing price and a neutral or slightly-decreasing volatility.

Setup

Sell a Put and buy a further OTM Put

Typical Application

1. Speculate on a neutral to slightly-increasing price and a neutral or slightly-decreasing volatility

Volatility forecast

Neutral to Down

Price forecast

Neutral to Up

Breakeven

Strike Price of the sold (short) Put minus the Premium (credit) received

Max contract loss

Width of the credit spread minus the credit received

Max position loss

same as Max Contract Loss

Put Credit Spread

Level: Intermediate

2 Legs

Credit

Intermediate

Other names

Bull Put Spread

You sell (short) a Put and buy (long) a further OTM Put

Description

A trader who wants to speculate on a neutral to slightly-increasing price with a neutral to slightly-decreasing volatility can sell (write) a Put Credit Spread. The trader receives a credit for the whole position, called a premium, though this credit is smaller than the credit associated with selling a Put alone. In exchange for this reduction, the max loss of a Put Credit Spread is limited to the width of the spread plus the credit received.

Suppose stock XYZ is trading at $138. You forecast a small increase in XYZ price and a small decrease in volatility.

You sell a $135 / $130 Put Credit Spread (selling the $135 Put and buying the $130 Put) for a $1.50 credit to express this view. Your breakeven XYZ price at expiry is $135 (short Put of the spread) - $1.50 (premium received) = $133.50, but since the time component of your trade plan may not extend all the way to expiration you should be prepared to sell to close at a variety of XYZ prices as the market value of your $135 / $130 Put Credit Spread changes.