Put Credit Spread Explained (Setup, Trade Examples, & More)

Learn the Put Credit Spread Options Strategy with in-depth explanations, trade examples, and platform demonstrations.

==== Chapters ====
0:00 Intro (Video PDF Download in Description)
0:47 What is the Put Credit Spread Strategy?
1:37 Max Profit & Max Loss Explained
2:32 Put Credit Spread Risk Graph
5:20 When to Enter Put Credit Spreads? (Profitable Trade Example)
10:04 Short Put vs. Put Spread Risk Comparison
11:18 Why a Spread's Maximum Value is the Width of the Strikes?
12:50 Exercise & Assignment: In-the-Money Spread at Expiration
14:15 Strike Price Selection & Risk/Reward Analysis
19:10 Put Spread Setup for Small Accounts
19:47 Closing Trades Before Expiration
21:55 Leave Questions/Comments Below!

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===== Summary =====

In this video, we'll walk through the put credit spread options strategy. Other strategy names: the bull put spread, short put spread, or selling a put spread.

The strategy is constructed by shorting a put option and then buying another put option at a lower strike price and in the same expiration cycle.

The bull put spread has limited risk, which is the (width of the strikes - the entry credit) x 100. The strategy also has limited profit potential, which is the premium collected at entry (spread sale price x 100).

The strategy makes money so long as the stock price remains above the short put strike price, and loses money if the stock price decreases. It doesn't matter if the stock price is slightly below the spread or zero at expiration, the loss potential is the same.

Because of this, a put credit spread has significantly lower risk compared to selling naked put options. It's also a much more suitable strategy for small accounts due to the low-risk nature of selling narrow spreads (like a $1-wide spread).

In the video, I walk through numerous trade examples in IWM, and do a walkthrough of strike price selection and risk/reward analysis on tastytrade.

Watch the video all the way through to learn these key concepts quickly, and hopefully effectively with the explanations and accompanying visuals.

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[projectfinance]

What did you think about this video? Leave comments/thoughts below.

-Chris

[kwnolegs]

Best video I've seen on put credit spreads. To the point with great examples. I also appreciate how you explained managing the spread, i.e., what happens at expiration and how you might close the spread before expiration. Well done.

[jeremyjohnson]

This video was fabulous--easy to understand and thorough! Chris always has great content!

[leonth]

Thanks Chris. The best video in you tube explaining PUT Spread.

[HefTrade]

Hey Chris,

I like the risk to reward calculation. Thanks for putting that in there! Might have to implement that in my trading.

[LMF-ctlt]

Chris,
Another outstanding video. Your explanation and graphics are so well done!
How do you determine profit if the stock price is between the strikes at expiration?

[aurinator]

That simple explanation at the start is honestly the best I've seen so far.

[MD-gkos]

This is the best explanation of ‘bull put spreads’ Ive listened to! Thanks so much!

[jdvm]

I would like to see a risk graph for the small accounts scenario, the one with just $1 dollar wide spread, also how do you create does risk graphs (not the app just the data). Really like your content keep up the good work.

[thomaskoeppel]

Definitely appreciate the video. Very informative as always. When you talk about allotting a certain percentage of your portfolio to a trade are you referring to the cash portion of your portfolio or your entire portfolio, long positions of stocks included? Thanks very much.

[kssandhu]

Gd job Chris..lot of conceptual info but well explained..thnx

[Vastfill]

Great video, super clear. I only wish you went over finding the right time to roll your put credit spread. Can't seem to any much videos that go over it.

[letstalkwithlani]

Very informative!! I needed to hear about the different wordings for the spreads and alll about put credit spreads to gain more profit in my portfolio on Robinhood.

[HenrySchade-xg]

amazing content! Given you clearly have extensive experience trading options, do you still use this strategy?

[davesaunders]

Chris. Great video and very clearly presented. What happens if you place a 5 point spread for example buy $100 sell $95 and the stock price drops to $97 on the last day. I’m forced to buy at $100 but the sell never triggers?

[tksatya]

very good presentation, easy to understand

[silverBullAU]

good example and work through of scaling the trade via qty of contracts versus the wider spread

[alonhersch]

Hi, hope you are well!
Just wondering how likely it is to find a 1/3 in premium?
I'm finding it difficult to find a 1/3 of the width in premium

Thank you ❤

[paulsteam]

I really do like the way you explain things simple and to the point...In the Spread you reference at the 14 min mark (Short 190, Long 185)...what happens if the stock ends at 187 at expiration? Does that mean only short put 190 would be exercised, since it didn't shoot down to the 185? And you'd have to buy 100 shares at 190?

[jordanfong]

The RR is useful but doesn't take into consideration the probability of profit. If you widen the strikes you also lowers the breakeven prices and increase probability of profit. So buying multiple narrow credit spread will take more of a move in the underlying to be profitable compared to a wider credit spread. Most the time you shouldn't hold credit spread into expiration anyways so widening the spread maybe better in general. 18:48