Sell a put and buy a lower-strike put in the same expiration; a bullish credit trade that profits if the underlying stays above the short strike.
This is the workhorse of retail premium selling. You collect a credit, the long put caps the disaster, and the position makes money if the underlying rises, drifts, or simply fails to fall far enough — three of the four things a stock can do.
The uncomfortable arithmetic is that risk usually exceeds reward by several times. A spread collecting a third of its width risks two dollars for every one it can make, so a win rate near 70% is roughly break-even before costs. The edge, if any, lives in the variance-risk-premium, not in the win rate.
Example: XYZ at $50. Sell the 45-day $47.50 put at $1.10, buy the $45 put at $0.50, for a $0.60 credit on a $2.50 width. Max profit $60, max loss $190, breakeven $46.90, and the buying-power-reduction is $190 rather than the $4,750 a cash-secured-put would tie up.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.The win rate needed to break even. How often a method must win just to stay level, for each reward-to-risk ratio. At 1:1 half the trades must win, at 1:2 a third, and at 1:3 a quarter, because each win covers more losses.
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