Been reading about put spreads but I am confused with the explanations I find online.
I see videos about buying and selling puts at different strikes but I can’t figure out when you actually make money.
Do people here use put spreads often? I want to understand the basics before I try.
My biggest mistake was jumping into put spreads without paper trading them first.
I lost $180 on my first attempt because I didn’t understand that both options expire worthless if the stock stays above your higher strike.
Start with small amounts and track how the spread value changes as expiration approaches. The time decay caught me off guard completely.
Think of put spreads as betting the stock drops but with a safety net. You buy one put and sell another at a lower strike to reduce your cost. The money comes when the stock falls between your two strikes. Below the lower strike, your profit maxes out. Above the higher strike, you lose what you paid for the spread. Works best when you think a stock will drop moderately, not crash or stay flat.
Bear put spreads allow for a cost-effective way to profit from a stock’s decline. The challenge lies in selecting the right strikes and timing.
If the stock doesn’t decline as expected, both options may lose value because of time decay.
Analyzing profit and loss charts can clarify the possible outcomes before entering a trade.
Put spreads work best when stocks drop 5-15% in my experience.
Put spread profits when underlying price falls below breakeven point.
• Buy higher strike put
• Sell lower strike put
• Max profit = strike difference minus premium paid
• Breakeven = long strike minus net premium
Limited risk strategy.