Bull Put Spread Complete SOP: From Screening to Exit
From stock screening and strike selection to entry timing, position management, and exit — the complete operating procedure.
From stock screening and strike selection, to entry timing, position management, and exit decisions — the complete Bull Put Spread operating procedure. No need to predict direction. You just need the stock to "not fall too much."
1. What Is a Bull Put Spread?
A Bull Put Spread is one of the most widely used strategies among options sellers. The structure is straightforward: simultaneously sell a put option at a higher strike price (short put) and buy a put option at a lower strike price (long put) — same expiration date, same underlying.
Core logic: You believe the underlying will "not fall too much." You don't need it to rise — you simply need the stock price to remain above your short put strike at expiration. The difference in premiums between the two puts is your maximum profit; the difference between the two strikes (minus the net credit received) is your maximum loss.
📊 Trade Structure Example
The risk-to-reward ratio (R:R) on this trade = $170 / $830 ≈ 1:4.9. The Delta of approximately 0.20 on the short put implies roughly an 80% probability that NOW will not breach the short strike at expiration.
2. Complete Operating SOP — Seven Steps
Stock Screening: Four Defensive Filters
Bull Put Spreads are only opened on stocks that pass all four defensive filters. Filter 1: Institutional sponsorship (Accumulation/Distribution rating ≥ B+, institutional buying increasing). Filter 2: Economic moat assessment (clear and defensible competitive advantage). Filter 3: Volatility window (IV Rank 20–60% — neither too low nor too high). Filter 4: Technical condition (stock price above the 10-week moving average, in an established uptrend). All four filters must pass before proceeding to the next step.
Confirm Broad Market Condition
Actively open Bull Put Spreads only when the broad market is in a confirmed "Confirmed Uptrend" (following a valid Follow-Through Day). When the Distribution Day count reaches 4 or more, shift to observation mode — reduce position size or widen your Delta distance from the current stock price.
Select Expiration: 30–45 Days to Expiration (DTE)
Target an expiration 30–45 days out. This window offers the best Theta decay rate — not too slow (unlike 90 DTE), yet with enough time for risk management (unlike the urgency of 7 DTE). Avoid earnings announcement dates unless you have a deliberate event-driven trade thesis.
Select Strike Prices: Sell the 0.20–0.25 Delta Put
Set the short put Delta at 0.20–0.25, implying a 75–80% probability that the stock will not reach your short strike at expiration. The distance between the short and long put should be $5–$10 (adjusted for the stock price and liquidity), providing a defined loss buffer. Confirm that the bid-ask spread is reasonable — ideally Ask minus Bid is less than $0.20.
Size the Position: 5% Risk Unit (RU)
The maximum loss on any single Bull Put Spread must not exceed 5% of total account value (1 RU). Calculation: $20,000 account × 5% = $1,000 (1 RU). If the spread's maximum loss is $830 (as in the example above), open at most 1 contract. Total simultaneous positions must not exceed 5 (total risk exposure ≤ 5 RU = 25% of account).
Position Management: Three Scenarios
Scenario A — On track: When the position reaches 50% of the premium collected (profit target), close early — do not wait until expiration. Example: collected $170; buy back to close when the remaining position value drops to ≤ $85.
Scenario B — Headwind (stock declining toward the short put): Evaluate Roll feasibility — roll out 30 days and down in strike price. Only execute if the Roll generates a net credit (Net Credit Roll). If rolling results in a net debit (Debit Roll), take the loss outright instead.
Scenario C — Sharp drop through the short put: Stop loss triggered — when the loss reaches 2× the premium originally collected, close immediately without waiting.
Exit Decision Tree
With 7 or fewer days to expiration (DTE ≤ 7), if the position has not yet reached the 50% profit target but the stock remains safely 3% or more above the short put strike, you may hold to expiration for full decay. If the stock has closed within 2% of the short put strike, close the position proactively — Gamma risk accelerates sharply in expiration week.
3. Key Parameters Quick Reference
| Parameter | Standard Setting | Notes |
|---|---|---|
| Days to Expiration (DTE) | 30–45 days | Optimal Theta decay window |
| Short Put Delta | 0.20–0.25 | Implies 75–80% probability of profit |
| Spread Width | $5–$10 | Adjust based on underlying stock price |
| IV Rank Target | 20–60% | Too low = thin premium; too high = elevated risk |
| Profit Target | 50% of premium collected | Close early; don't chase the last few dollars |
| Stop Loss Level | Loss reaches 2× premium collected | Example: collected $170 → stop loss at $340 loss |
| Position Size (RU) | 1 RU per trade (≤ 5% of account) | Maximum 5 concurrent positions |
| DTE ≤ 7 Protocol | Close proactively if within 2% of short put | Avoid Gamma risk at expiry |
- Bull Put Spread = collect net credit + defined maximum loss options selling strategy
- Seven-step SOP: Screen → Confirm market → DTE 30–45 → Delta 0.20 → Size by RU → Manage → Exit
- Profit target: 50% of premium collected; stop loss: loss reaches 2×
- IV Rank 20–60% is the sweet spot for opening positions
Comments ()