Bull Put Spread vs Bear Call Spread: Which to Pick

Key Takeaways:

• A bull put spread works for a neutral to bullish outlook and is profitable if the underlying holds above the short put strike.
• A bear call spread works for a neutral to bearish outlook and is profitable if the underlying holds below the short call strike.
• Both have limited profit and losses. The maximum profit is the net premium received, while the maximum loss is the difference between the strike prices minus the net premium received.
• The width between strikes, implied volatility, and time to expiry affect the performance of the credit spread, along with the direction of the underlying.
• The mastertrust option chain provides information such as strike prices, premiums and open interest that can be used when setting up and monitoring either spread.

Bull Put Spread vs Bear Call Spread: Understanding the Key Differences

If you have experience in f&o trading, chances are that you have encountered credit spreads, a way of trading options with predefined maximum profit and maximum loss. 

However, choosing between a bullish put spread and a bearish call spread can become complex because both of them have a similar risk and reward structure.

This blog breaks down both strategies and walks through the factors to consider when choosing an options trading strategy for your next trade.

What Is a Credit Spread?

A credit spread is an options trading strategy in which you sell an option and then buy another similar option with the same expiry date but with different strike price. The premium received from the option sold is higher than the premium paid for the option bought, resulting in a net credit. This net credit represents the maximum profit from the trade.

The potential loss is limited because the option you have bought offsets part of the risk from the option that you have sold. This means the maximum profit and maximum loss can be calculated before placing the trade, which is useful when using a credit spread in f&o trading.

The bull put spread and bear call spread both fall under this umbrella, differing in type of option and direction.

What Is a Bull Put Spread?

A bull put spread is built when you expect a stock to stay flat or move up. You sell a put with a higher strike and buy a put with a lower strike, with the two having the same expiry.If the underlying stays above the sold strike at expiry, the spread earns the maximum profit.

Otherwise, the maximum possible loss is known since the lower put shields against any further loss.

Example: The price of the stock is ₹1,000. A put option can be sold at ₹980 and another put option purchased at ₹950, maturing in the same week, with a net credit received. The maximum profit is realised when the underlying price is above ₹980 at expiry. If the price falls below ₹950, the maximum loss will be the difference between the strikes minus the net credit received.

The bull put spread is a moderately bullish to neutral strategy.

What Is a Bear Call Spread?

The bear call spread can be used when you expect the stock to remain flat or fall in value.You will short a call at a lower strike price and purchase a call at a higher strike price. If the stock remains below the sold call strike at expiry, the spread can expire worthless and you keep the net premium received.

Example: Suppose the stock is trading at ₹1000. You sell a call at ₹1,020 and buy a call at ₹1,050 with the same expiry, receiving a net credit

. If the stock is below ₹1,020 at expiration, the maximum profit is the net premium received. If the stock is at or above ₹1,050, the maximum loss is the difference between the strikes minus the net credit received.

Bear Call Spread is generally used for a somewhat bearish or neutral stance, expecting the stock not to have a steep increase in value but to decrease in value.

Bull Put Spread vs Bear Call Spread: Key Difference

Both strategies can benefit when the underlying does not move significantly against the position and time passes towards expiry. The main difference is the market outlook: the bull put spread is used for a neutral to bullish outlook, while the bear call spread is used for a neutral to bearish outlook.

Factors to Consider Before Choosing

Your market outlook—a stock holding support or grinding higher favours a bull put spread. One struggling at resistance or drifting lower favours a bear call spread. Both strategies carry risk if the underlying makes a sharp move against the position.

Implied volatility. Higher implied volatility can lead to higher option premiums. Consider the level of implied volatility when choosing a credit spread.

Strike selection and width. The difference between the strike prices affects the maximum profit and maximum loss of the spread. . The wider spread generally allows for a higher maximum loss, while the premium received also changes. The strike selection and spread width should therefore be considered based on the risk involved in the trade.

Time to expire. Time decay can affect the value of the options in a credit spread. As expiry approaches, the effect of time decay increases.

Margin and liquidity. Both spreads need margin, usually less than a naked option sale since risk is capped. It is also important to consider liquidity and open interest when selecting strikes, as these can affect the ability to enter or exit a position.

If you are still building your options trading foundation, it helps to get comfortable with how options pricing works before layering spread strategies on top.

How mastertrust Helps You Trade Credit Spreads

With mastertrust, the option chain function provides information such as comparing strikes, premiums, and open interest from one screen and allows you to select the options to trade with ease before the order is placed.

For f&o trade, mastertrust charges Rs. 20/- per order for Stocks, F&O and Commodity, making their charges straightforward for both sides of a spread. mastertrust offers zero account opening with the first year’s demat AMC free of cost, and you have an option of getting lifetime demat AMC for just one time payment.

Whether you're leaning bullish with a put spread or bearish with a call spread, mastertrust's order execution and margin visibility tools help you track your position through expiry. You can learn more about F&O trading basics on mastertrust if you're structuring your first credit spread.

Final Thoughts

Bull put spreads and bear call spreads have a similar risk structure but differ in their market outlook. A bull put spread is generally used for a neutral to bullish outlook, while a bear call spread is generally used for a neutral to bearish outlook. The choice depends on your view of the underlying, the spread width, implied volatility and time to expiry.

Frequently Asked Questions (FAQs)

Which is safer, a bull put spread or a bear call spread ?

Neither one has unlimited risk.  Both have a defined maximum loss based on the difference between the strike prices and the net premium received.

Can I use both spreads at the same time for trading ?

Yes, putting the two together to create an iron condor is useful when one expects that the stock would remain in range.

What happens if the stock stays exactly at my sold strike at expiry ?

If the stock is exactly at the sold strike at expiry, the outcome can depend on the applicable exercise and assignment process. The final result may therefore differ from a position that expires clearly above or below the strike.

Do credit spreads require a large amount of capital ?

The required margin is usually lower than that needed for the sale of an unsecured option position.