Put credit spread playbook¶

A practical walk-through of the put credit spread (bull put spread): when it fits, how to build it, and how to think about size and trouble.

Not financial advice

Educational draft only — not a recommendation to trade any symbol or size.

When this trade matches your story¶

You collect a credit when your thesis is: the stock should stay above my short put. You are comfortable defining a max loss if you are wrong.

If that sentence does not match your view, do not force a PCS — look at CCS or stand aside.

Structure (quick refresh)¶

Sell put at \(K_s\)
Buy put at lower strike \(K_l\)
Max profit \(\approx C\) (the credit)
Max loss \(\approx W - C\) where \(W = K_s - K_l\)

Full charts and a numeric example: Credit-spread payoffs.

From idea to order — seven steps¶

1. Thesis¶

In one or two sentences: why will price not crash through the short put? Support, quality, valuation — whatever your process uses — belongs in the journal.

2. Liquidity¶

Prefer names and option lines with reasonable volume and open interest so you are not fighting huge bid/ask spreads. Exact numeric floors are [operator preference].

3. Expiration¶

Start with the monthly bias unless you have a reason for a weekly and a smaller size. See Weekly vs monthly.

4. Strikes¶

Common education material discusses short premium around 0.15–0.30 absolute delta. [verified] as a common heuristic range. Lock your band in writing. The long put sets width and therefore max loss.

5. Size¶

Count contracts from max loss, not from share price. Many retail guides start near 1–2% of equity per trade as a teaching band. [verified] as common guidance — your hard cap is personal. Also check heat after the fill (see risk policy).

6. Events¶

If earnings (or another binary event) sit inside your blackout window, skip or wait. Gaps can ignore your carefully chosen delta.

7. Journal¶

Record thesis, strikes, credit, max loss, and tags. Future-you needs that more than a perfect chart annotation.

If the trade goes wrong¶

There is no magic repair kit. Typical choices:

Close for a defined loss
Roll (change expiry/strikes) with eyes open on new risk
Hold toward expiration if that is your written policy

Decide the default on a calm day, not while the stock is cascading.

Anti-patterns¶

Sizing because “the credit looks big”
Stacking many PCS on the same sector until one theme sinks them all
Treating “defined risk” as “small risk”
Skipping the long put “just this once”

What to do next¶

Call credit spread playbook · Risk policy

Sources¶

Not financial advice. Verify broker rules yourself.