A bull put spread setup involves selling one put (at or near the money) and buying one lower-strike put (further out of the money) at the same time.  Having two different strike contacts in the order creates a spread.

When selling this spread at trade entry, the trader is obligated (if the buyer exercises their contract) to buy the underlying shares at the strike price of the put that was sold.  The trader also has the right to sell the same shares at the purchased put’s lower strike.  By spreading the trade, the user has limited their potential losses to the difference between the two strikes.

Since the trader risks receiving shares at a higher price than the price the trader has the right to sell the same shares, the trader is compensated for the risk by receiving a premium at the time of trade entry.  This premium is the difference between the sold put’s credit and the bought put’s cost.

The bull put spread is frequently used by beginner and seasoned options traders alike.  This setup, when optimized as part of an overall strategy, allows the trader to take advantage of decaying options while limiting their risk at tradeoff of higher potential profits seen in a short put setup.

This setup is particularly well suited for small brokerage accounts and those with limited options trading permissions.