Markets have been up and down these past few months, though many are leaning more towards optimism after the S&P 500 crossed over the 6,000 range recently. Although buying stocks for capital appreciation is undoubtedly the preferred way to capitalize on current growth, investors have the option to sell bull puts for guaranteed income at lower risk. 

What Is A Bull Put Spread?

The bull put spread, more commonly known as a put credit spread, is an options trading strategy where you sell a higher-strike put and buy a lower-strike put as a hedge against assignment. Both options expire at the same time, and the strategy results in a net credit. 

The bull put spread is used during moderate bullish periods, as it capitalizes on neutral or slight upside movement. 

The maximum profit for the strategy is the net credit received at the start of the trade, and this crystallizes when the underlying asset trades at or above the short put strike and both options expire out of the money. 

The breakeven price is calculated by subtracting the net credit from the short put strike. 

On the other hand, the trade enters its loss condition when the asset’s price moves below the breakeven. Maximum loss happens when the underlying asset trades below the long put strike. 

How To Use This Options Strategy On Palantir To Generate Income Right Now

Barchart’s new PnL Charting tool makes it easier for traders to visualize their bull put trades. You can also access essential metrics, such as net Greeks, volatility values, and overall trend analyses based on technical data, on the same panel, making options analysis easier and more convenient. 

To access the charting tool, go to any stock or ETF profile page you want, then select Vertical Spreads under Options Strategies. I’ll use Palantir (NASDAQ: PLTR) as an example. 

You'll be brought straight to a results screen for different vertical spreads. Click the Bull Put tab, and it will show you potential trades for the closest expiration date. Simply change the expiration date to your preferred one. 

For reference, I think that 30-45 DTE (days to expiration) trades are better for risk management and maximizing net credit. So, I’ll change the expiration date to July 18, 37 days from today. 

Trades are initially arranged based on lowest to highest short strikes. I can change the arrangement by clicking on any of the available column headers. For this analysis, I’ll arrange it from lowest to highest probability of loss, then scan the top trades for one with a favorable max profit and risk/reward ratio. 

I usually prefer to trade bull puts that have less than 30% loss probabilities, but I can go slightly above if the trade looks favorable in other aspects.

And in this instance, I have one that fits the bill with its relatively high premium and low risk-reward ratio. So, let’s break down the trade.

Trade Breakdown & Potential Scenarios

According to the screener's recommendation, you can sell a 130-strike put and buy a 115-strike put on Palantir that expires on July 18, 37 days from today. For reference, Palantir is trading at $136.39, so the bull put is already out of the money. 

This trade results in a net credit of $4.03 per share or $403 in total. The maximum loss is $10.97, or $1,097 total, which puts its risk-reward ratio at 2.72 to 1. The trade has a 32.8% chance of ending in a loss - which I find acceptable based on its low risk-reward ratio. Given there's 37 days to expiry, I have lots of time to adjust the trade should it be necessary.

If Palantir trades above $130 at expiration, you keep the full $403 premium. If it dips below $115, the trade incurs its maximum loss. 

Now, a quick look at the PnL chart allows me to access other trade information. To pull up the feature, simply click on the graph icon between the expiration date and trading price or the Profit/Loss Chart button in the upper-right corner. 

Now, let’s go over each tab. 

Profit & Loss Tab

In the classic profit/loss tab, you’ll find the trade structure, the breakeven price ($125.97), and other metrics on the default results page. You can interact with the graph by hovering your cursor on any price point to see your projected profit or loss at expiration. 

Greeks Tab

The Greeks tab shows relevant Greeks for the trade, including Net Delta, Net Theta, Net Vega, and more. Values are shown as net since bull puts have two trade legs.

Expected Move Tab

The Expected Move tab displays the projected trading range of Palantir across various expiration dates, along with the closest announced earnings report, which is crucial for managing trade timing. Right now, PLTR is expected to trade between $152.92 and $119.86 by July 18, which is favorable for this 130-115 bull put. 

Volatility Tab

Meanwhile, the Volatility tab displays volatility metrics, including historical volatility (HV), implied volatility (IV), IV Rank, IV Percentile, and average IV for the 5-day, 1-month, and 3-month periods. Currently, IV is at 55.29%, meaning premiums are slightly elevated, while IV rank and overall volatility are low, which means the trade faces less risk. 

Trend Tab

Lastly, the Trend tab shows the stock’s projected direction based on a combination of technical analysis and Barchart’s proprietary Trend Seeker® feature across short-, medium-, and long-term periods. Right now, PLTR is expected to trade bullishly across all periods - good news for the trade.

Final Thoughts

Diversifying your income streams is always a good idea. With Barchart’s new PnL feature, you can access option analytics and charts to help ensure that your bull put trade will end in your favor. 

However, while these tools are carefully designed to utilize real-time, verifiable market data and provide valuable insights, they are not 100% accurate predictors of price movement. So, keep your eye on the prize and always monitor your positions, regardless of how confident you are of any outcome.