How to Use a Bull Put Spread Strategy in the Indian Stock Market

Introduction 

Indian retail participation in the derivatives market has surged dramatically in recent years. Traders are no longer restricting themselves to buying and selling stocks; they are exploring options strategies to hedge risks, generate income, and trade with defined outcomes. However, one of the biggest challenges in options trading is managing risk exposure. Many new traders fall into the trap of selling naked options, which can lead to unlimited losses.

This is where defined-risk strategies like the Bull Put Spread come in. A bull put spread is a smart way to generate profits in a mildly bullish or range-bound market, while keeping your losses limited. Instead of betting aggressively on a sharp rally, this strategy allows you to collect premium income when you expect the market to remain above a certain level.

In this guide, we’ll explain what a bull put spread is, how it works in Indian markets, when to use it, real-world examples, margin implications, benefits, risks, and FAQs.

What Is a Bull Put Spread? 

A Bull Put Spread Strategy is a credit options strategy that involves selling a higher strike put option and simultaneously buying a lower strike put option of the same expiry.

• Step 1: Sell one Out-of-the-Money (OTM) Put – This generates premium income.
• Step 2: Buy one lower strike OTM Put – This limits your downside risk in case the market falls sharply.

Both options belong to the same expiry series, typically monthly contracts in India.

Example Setup (Nifty @ 25,000):

• Sell 25,000 Put @ ₹100
• Buy 24,900 Put @ ₹60
• Net Credit = ₹40 × 70 = ₹3,000 (since 75 units per lot)

The strategy is “bullish” because you profit if Nifty stays above 25,000. Unlike naked put selling, however, your loss is capped because of the protective put you buy.

Thus, the bull put spread is a defined-risk, defined-reward setup that gives traders peace of mind while still allowing them to generate income.

How the Bull Put Spread Works 

The Bull Put Spread works on the principle of premium collection with built-in insurance. Here’s the step-by-step mechanism:

1. Entry:
   • You sell a 25,000 Put and earn ₹100.
   • You buy a 24,900 Put and pay ₹60.
   • Net Credit = ₹40.
2. Possible Outcomes:
   • If Nifty stays above 25,000 → Both options expire worthless, and you keep ₹3,000.
   • If Nifty falls between 24,960 and 25,000, → You start losing gradually, but the loss is still limited.
   • If Nifty falls below 24,900 → You hit max loss, but it is predefined.
3. Formulas:
   • Max Profit = Net Premium = ₹3,000
   • Max Loss = (Difference between strikes – Net Premium) × Lot Size
     = (100 – 40) × 75 = ₹4,500
   • Breakeven = Short Put Strike – Net Premium
     = 25,000 – 40 = 24,960

Quick Snapshot:

• Above 25,000 → Profit ₹3,000
• At 24,960 → Breakeven
• Below 24,900 → Max Loss ₹4,500

This makes the Bull Put Spread safer than naked put selling while still being profitable in sideways-to-bullish conditions.

When to Use the Bull Put Spread 

The Bull Put Spread is not for every market condition. It works best in:

1. Mildly Bullish Market:
   You expect the index/stock to remain steady or inch higher, not crash.
2. Strong Support Zone Nearby:
   Nifty at 25,000 with visible support around 24,900 is a classic case.
3. High Implied Volatility (IV):
   Selling puts during high IV means you collect higher premiums.
4. Sideways or Consolidation Phase:
   If the market is consolidating in a range, the bull put spread allows you to earn income while protecting downside.
5. Risk-Averse Approach:
   Beginners and retail traders who want limited risk exposure should prefer this over naked put selling.

In short: When you believe “Nifty won’t fall much below a support level”, a bull put spread is the best strategy.

Real Example from Indian Stock Market 

Let’s construct a Bull Put Spread with Nifty at 24,980 (rounded 25,000):

• Sell 25,000 Put @ ₹100
• Buy 24,900 Put @ ₹60
• Net Premium = ₹40 × 75 = ₹3,000

Scenarios at Expiry:

Key Takeaways:

• Max Profit = ₹3,000 (if Nifty closes above 25,000).
• Max Loss = ₹4,500 (if Nifty closes at or below 24,900).
• Breakeven = 25,000-40 = 24,960.

This shows the risk-reward is clearly defined. You know in advance your maximum gain and maximum loss.

Margin Requirements & Risk Management 

Under SEBI’s peak margin rules, naked option selling requires huge margin due to unlimited risk. But with a bull put spread, risk is capped, so margins are lower.

• Naked 25,000 Put sell margin: ₹1.2–1.5 lakh.
• Bull Put Spread margin (25,000 PE sell + 24,900 PE buy): ~₹35,000–40,000.

This makes the strategy capital-efficient for retail investors.

Risk Management Tips:

1. Select Strikes Wisely: Choose strikes where strong technical support exists.
2. Avoid Very Narrow Strikes: Wider gaps give better cushion.
3. Book Profits Early: If you’ve earned 60–70% of premium before expiry, square off.
4. Check Liquidity: Stick to liquid instruments like Nifty, Bank Nifty, Reliance, Infosys.
5. Diversify: Don’t put all margin into one spread.

Samco’s Margin Calculator helps check capital requirements before placing trades, ensuring no surprises.

Advantages & Disadvantages 

Advantages:

• Limited downside risk compared to naked puts.
• Lower margin requirements.
• Generates steady premium income.
• Works well in sideways and mildly bullish markets.

Disadvantages:

• Profit is capped at net premium.
• Poor strike selection can lead to losses.
• Requires understanding of options Greeks.
• Not effective in highly trending markets.

Bull Put Spread vs Similar Strategies 

Key Insight:

• Bull Put = Credit Spread (premium received upfront).
• Bull Call = Debit Spread (premium paid upfront).

FAQs:

1. Can I exit early? 

Yes, both legs can be squared off anytime.

1. What if Nifty crashes below 24,900? 

You face max loss, but it is capped.

1. Can I apply this on stocks? 

Yes, but ensure liquidity (Reliance, Infosys, HDFC Bank).

1. Is it good for beginners? 

Yes, safer than naked puts.

Mistakes to Avoid:

• Picking strikes too close to spot (higher loss chance).
• Using illiquid stocks (wider spreads, slippage).
• Holding blindly till expiry instead of booking profits early.

Conclusion 

The Bull Put Spread Strategy is one of the safest credit strategies in the Indian options market. By combining a short put with a protective long put, it allows traders to profit from a sideways-to-bullish outlook with limited risk. With lower margin requirements and clear payoff visibility, it’s a practical tool for Indian retail traders.

Whether you trade Nifty, Bank Nifty, or large-cap stocks, the bull put spread ensures you earn steady returns without exposing yourself to unlimited losses. Start by practicing with Samco’s Options Strategy Builder and Margin Calculator before deploying capital in live markets.