Credit Spreads Options Strategy: Bear Call Spread & Bull Put Spread

Strategy Buildup:

Short a higher strike put options.

Long a lower strike put options.

Same underlying, expiry and same quantity.

Breakeven = Shorted Put Strike Price - Net premium received

Maximum Profit = Net Premium Received.

Maximum Loss = Strike difference between long and short put - Net premium receive

It is very important to identify proper technical scenario before we go put Bullish put spread (Credit Put Spread). As it is a bullish strategy, therefore make sure that the underlying is in official up trend and currently is in corrective movement and approaching demand zone. Or the underlying is in up trend and currently creating other technical buying scenario in price action like long CMO, The Morning star, The morning Doji star, the piercing pattern, bullish engulfing, hammer, trendline breakout etc, but the volatility will remain low till the expiry is the most beautiful timing for bull put spread or credit put spread.

Market and underlying volatility should remain low till the expiry date.

Remember, if the volatility increase within the expiry, the maximum probability is we will loss money. This volatility part is most important part after technical analysis.

My practical experience saying that other than above technical & volatility scenario are extremely risky which can caused 100% losable trade.

Assume an Index trading at 24150, and the strike difference is 50. Many pairs of bear call spread is possible here.

3) Short normal ITM put + Long OTM put  (Like Short 24200PE + Long 24100PE)

4) Short ATM put + Long OTM put   (Like Short 24150PE + Long 24100PE)

5) Short ATM put + Long Far OTM put  (Like Short 24150PE + Long 24050/24000PE)

6) Short OTM put + Long Further OTM put  (Like Short 24100PE + Long 24050/24000PE)

Based on technical scenario and volatility we shall determine which combination will the best for that particular expiry. The selection comes from experience and again I can't explain in a few words. The more experience you will gain in technical analysis and volatility the more you will become an expert to chose which combination to select for trading.

Again requesting, Until you have excellent knowledge of technical analysis and market, do not research with strike combinations instead focus the popular combination which is Short ATM Put options + Long OTM Put Options.

Assume the Nifty trading at 24150

we will short ATM put option and long nearest OTM put options 1 lot each 4th July 2024 Expiry

Short 24150PE @ 122

Long  24100PE @ 99

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Net premium received= 23/-

Breakeven point = Shorted Put Strike Price - Net premium received

                                  = 24150 - 23

                                  = 24127

Maximum Profit = 23/-

Maximum loss= Strike Different Between Traded Option - Net premium Received

                             = 50-23

                             = 27

It means, if Nifty fall unlimited your maximum loss will be only 27/- if you let both the options to expire. But before expiry if you try to exit due to higher volatility then maximum loss can be extended beyond the calculation. Most of the traders lose more money than they calculate because of this reason. If suddenly Nifty start falling then premium of the ATM put options will increase faster than the premium of the OTM put options. It means you will lose faster money for short position where you will gain less money for Long OTM position. Here you may lose your patience and exit higher losses than calculation. Remember the maximum loss is calculated based on expiry.

Personally I believe trading options involves highest risk than any other instrument, almost all retail traders ended with a huge loss. Getting the perfect scenario described above is very rare like "once in a blue moon" so before you trade options first acquire proper knowledge and experience then start slowly as per your risk appetite.