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Bull Put Spreads
A bull put spread is an options strategy where Thetanuts long one put option and short another put option with the same expiration date but at a lower strike price. The goal of the bull put spread is for the spot price of the underlying asset to be above the strike price of the sold put option, which allows both puts to expire worthless. Before using this strategy, it is recommended for users to read how Thetanut’s degen vaults work. Please click here to find out more.
The bull put spread is suitable for users who are short-term bullish on the underlying asset.
There are 3 main scenarios when considering using the bull put spread strategy. To illustrate these scenarios, these are the parameters:
- 1.The initial spot price of ETH is $1,200
- 2.A user deposits $1,000 USDC into the bull put spread
- 3.The strike price of the short call option is $1,100
- 4.The strike price of the long call option is $1,050
- 5.The weekly yield is 15% ($150)
If the settlement price of ETH remains above $1,100
- 1.Both put options expire worthless
- 2.Weekly profit = weekly yield = $150
- 3.Post settlement balance = $1,000 (deposit) + $150 (weekly profit) = $1,150
If the settlement price of ETH is $1,075
- 1.The short put option is exercised while the long put expires worthless
- 2.Partial loss is incurred on the deposit = ((short put strike price - settlement price) / (short put strike price - long put strike price)) x deposit x -1 = (($1,100 - $1,075) / ($1,100 - $1,050)) x $1,000 x -1 = ($25/$50) x $1,000 x -1 = -$500
- 3.Weekly profit = weekly yield + partial loss =$150 - $500 = -$350
- 4.Post settlement balance = $1,000 (deposit) - $350(weekly profit) = $650
If the settlement price of ETH decreases beyond $1,050
- 1.Both put options are exercised
- 2.Weekly profit = weekly yield + max loss capped at deposit =$150 - $1,000 = - $850
- 3.Post settlement balance = $1,000 (deposit) - $850 (Weekly profit) = $150
Last modified 8mo ago