What is a Bull Put Spread?

A Bull Put Spread involves selling a put option at a higher strike price and buying a put option at a lower strike price. It is a bullish strategy used when you expect the underlying asset to stay above the short strike price.

What is a Bear Call Spread?

A Bear Call Spread involves selling a call option at a lower strike price and buying a call option at a higher strike price. It is a bearish strategy used when you expect the underlying asset to stay below the short strike price.

Credit Spread Calculator

Visualize your potential returns and manage risk for Bull Put and Bear Call spreads. Calculate max profit, loss, and break-even points instantly.

Calculate Spread

Select your strategy and enter the trade details.

Spread Strategy

Short Strike ($)

Long Strike ($)

Credit Received ($)

Contracts

What is a Credit Spread?

A credit spread is an options trading strategy where you simultaneously buy and sell options of the same class (puts or calls) and expiration date, but at different strike prices.

The key characteristic is that the premium received from the option sold (short leg) is greater than the premium paid for the option bought (long leg), resulting in a net credit to your account when the trade is opened.

Types of Credit Spreads

Bull Put Spread: A bullish strategy where you sell a put at a higher strike and buy a put at a lower strike. You profit if the stock stays above the short strike.
Bear Call Spread: A bearish strategy where you sell a call at a lower strike and buy a call at a higher strike. You profit if the stock stays below the short strike.

Why Trade Credit Spreads?

Credit spreads are popular among income-focused traders for several reasons:

Defined Risk: Unlike selling naked options, your maximum loss is strictly limited to the difference between strike prices minus the credit received.
High Probability: You can profit even if the stock moves slightly against you, stays flat, or moves in your favor.
Time Decay (Theta): Since you are a net seller of options, time decay works in your favor, eroding the value of the position as expiration approaches.

How to Use This Calculator

Select your strategy: Bull Put Spread or Bear Call Spread.
Enter the Short Strike price (the option you are selling).
Enter the Long Strike price (the option you are buying).
Enter the Net Credit received per share (e.g., 0.50).
Enter the number of Contracts (1 contract = 100 shares).
Click Calculate to see your Max Profit, Max Loss, and Break-Even point.

Pro Tip

Always pay attention to the Risk/Reward Ratio. While high-probability trades often have a lower reward relative to risk (e.g., risking $300 to make $100), ensure the probability of success justifies the risk you are taking.

Frequently Asked Questions

What happens at expiration?

If the stock price is outside your spread (above the short put or below the short call), both options expire worthless, and you keep the full credit as profit. If the price moves completely through your spread, you realize the maximum loss.

Do I need margin to trade credit spreads?

Yes, credit spreads typically require a margin account. The broker will hold collateral equal to the max loss of the trade to ensure you can cover the position if it goes against you.

Can I close the trade early?

Absolutely. Many traders choose to close the position early if they have captured a significant portion of the profit (e.g., 50% or 75%) rather than holding until expiration to reduce gamma risk.

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