Credit Spreads Explained - Bull Put and Bear Call Spreads
Reviewed by Leon Moyer - Published October 9, 2026 - Last reviewed October 9, 2026
In this lesson
Set up a bull put spread and a bear call spread, calculate the maximum profit, maximum loss and break-even of each, and explain why a credit spread usually risks more than it can make.
A credit spread is an options position that sells one option and buys another of the same type and expiration further out of the money, so you collect a net credit when you open it. The credit is the most you can make. The option you buy caps the loss at the strike width minus the credit, which is usually several times the credit itself.
There are two credit verticals: the bull put spread and the bear call spread. Both make money if the stock does not move too far against you.
How do credit spreads work?
Selling a single option can lose heavily if the stock moves hard against you, as Buyers and Sellers explains. A credit spread adds a second, cheaper option on the same side, further from the stock price, as a hard stop:
- The short option is the income leg. You want it to expire worthless.
- The long option is the insurance leg. It costs part of the premium, and it stops the loss at the width.
Time decay usually works in your favor. You do not need the stock to move; you need it to stay on the right side of the short strike.
How does a bull put spread work?
A bull put spread sells a put and buys a lower-strike put with the same expiration. It profits if the stock stays above the short strike, so it suits a neutral-to-bullish view.
Worked example
XYZ 47.5/42.5 bull put spread, 45 days to expiration
XYZ trades at $50. You do not expect it to fall below $47.50 in the next six weeks.
- Sell the XYZ 47.5 put for $0.95.
- Buy the XYZ 42.5 put for $0.11.
- Net credit: $0.95 - $0.11 = $0.84 per share, or $84 received.
At expiration:
- XYZ at or above $47.50: both puts expire worthless. You keep $84.
- XYZ at $45: the short put is worth $2.50 against you. Profit or loss: ($0.84 - $2.50) x 100 = -$166.
- XYZ at or below $42.50: the spread is worth its full $5 width against you. Loss: ($5 - $0.84) x 100 = -$416.
The premiums are model prices from the free calculator's defaults (30% implied volatility), not real quotes, and the figures ignore fees.
Illustrative and hypothetical. The ticker and prices are invented for teaching, and the figures exclude commissions, fees, margin interest and taxes, which reduce real results. Past or hypothetical outcomes do not indicate future results.
Per spread:
- Maximum profit is the net credit times 100: $84, if XYZ is at or above $47.50 at expiration.
- Maximum loss is the strike width minus the credit, times 100: $416, if XYZ is at or below $42.50 at expiration.
- Break-even at expiration is the short strike minus the credit: $47.50 - $0.84 = $46.66.
The Options Industry Council (OIC) uses the same formulas.
XYZ 47.5/42.5 bull put spread versus the 47.5 put sold alone, at expiration
Hover or tap the chart, or focus it and use the arrow keys, to read any price.
Open this trade in the free calculatorShow as table
How does a bear call spread work?
A bear call spread sells a call and buys a higher-strike call with the same expiration. It profits if the stock stays below the short strike, so it suits a neutral-to-bearish view.
Worked example
XYZ 52.5/57.5 bear call spread, 45 days to expiration
XYZ trades at $50. You do not expect it to rise above $52.50 in the next six weeks.
- Sell the XYZ 52.5 call for $1.22.
- Buy the XYZ 57.5 call for $0.27.
- Net credit: $1.22 - $0.27 = $0.95 per share, or $95 received.
At expiration:
- XYZ at or below $52.50: both calls expire worthless. You keep $95.
- XYZ at $55: the short call is worth $2.50 against you. Profit or loss: ($0.95 - $2.50) x 100 = -$155.
- XYZ at or above $57.50: the spread is worth its full $5 width against you. Loss: ($5 - $0.95) x 100 = -$405.
Illustrative and hypothetical. The ticker and prices are invented for teaching, and the figures exclude commissions, fees, margin interest and taxes, which reduce real results. Past or hypothetical outcomes do not indicate future results.
Per spread:
- Maximum profit is the net credit times 100: $95, if XYZ is at or below $52.50 at expiration.
- Maximum loss is the strike width minus the credit, times 100: $405, if XYZ is at or above $57.50 at expiration.
- Break-even at expiration is the short strike plus the credit: $52.50 + $0.95 = $53.45.
The OIC's bear call spread page gives the same formulas.
XYZ 52.5/57.5 bear call spread versus the 52.5 call sold alone, at expiration
Hover or tap the chart, or focus it and use the arrow keys, to read any price.
Open this trade in the free calculatorShow as table
Both charts also show the short leg sold alone, and that is where the real danger sits. A naked short call has unlimited loss, because a stock has no price ceiling: the uncovered 52.5 call has lost $828 by $62 and loses $100 more for every further $1 rise. The 47.5 put sold alone can lose up to $4,655 ($4,750 less the $95 premium) if XYZ falls to $0. The spreads' losses stop at $405 and $416.
Why do credit spreads risk more than they make?
Both examples risk four to five dollars to make one: $416 to make $84, and $405 to make $95. One maximum loss on the bull put spread wipes out the profit of nearly five maximum wins. A credit spread can be right most of the time and still lose money overall.
That lopsided ratio is the price of a high chance of keeping the credit. Expected Value in Options Trading - Weighing Every Outcome shows how to weigh it.
Three habits follow from this:
- Size by the maximum loss. Count each bull put spread as $416 of risk, not $84 of income.
- Collateral matches the risk. Under FINRA Rule 4210, a spread's short-option margin is capped at its maximum potential loss, so brokers commonly hold about $416 for this spread (the $500 width less the $84 credit). Brokers can require more, so check yours.
- Have an exit before you enter. Many traders close a credit spread before expiration, once most of the credit is captured or when the stock threatens the short strike. Options Exit Strategy - Plan Every Exit Before You Enter covers exit rules.
Should you use a credit spread or a debit spread?
A bull put spread and a bull call spread are both bullish with a fixed maximum loss. The difference is what you need from the stock:
- A debit spread (bull call) needs XYZ to rise past its break-even. It risks less than it can make.
- A credit spread (bull put) needs XYZ not to fall below its break-even. It can make less than it risks.
With strikes away from the stock price, the credit spread wins more often under the model and the debit spread wins more when it wins. The short leg of a credit spread can also be assigned early, like any short option, which the next lesson, Spread Width and Early Assignment - Managing a Vertical's Short Leg, covers.
Check your understanding
You sell an XYZ 100 put for $2.10 and buy the 95 put for $0.90. What are the net credit, the maximum profit, the maximum loss and the break-even?
Show answer
Net credit: $2.10 - $0.90 = $1.20, or $120. Maximum profit: $120. Maximum loss: ($5 - $1.20) x 100 = $380. Break-even: $100 - $1.20 = $98.80 at expiration.
In the 52.5/57.5 bear call spread, XYZ ends at $54 at expiration. What is the profit or loss?
Show answer
The short 52.5 call is worth $1.50 against you and the 57.5 call expires worthless. ($0.95 - $1.50) x 100 = a $55 loss.
Why does a bear call spread have a fixed maximum loss when a call sold on its own does not?
Show answer
The long, higher-strike call gains a dollar for every dollar the short call loses above its strike, so above $57.50 the loss stops growing at the width minus the credit. Without it, the short call's loss rises with the stock, which has no ceiling.
Key takeaways
- A credit spread sells one option and buys a further out-of-the-money option of the same type and expiration, for a net credit.
- Maximum profit is the credit; maximum loss is the strike width minus the credit.
- A bull put spread breaks even at the short strike minus the credit; a bear call spread at the short strike plus the credit.
- Credit spreads usually risk several times what they can make, so size and manage them by the maximum loss.
- The long leg is what turns an uncovered short option into defined risk; never remove it while the short leg is open.
Common questions
How do credit spreads work?
You sell an option and buy a cheaper option of the same type and expiration further from the stock price, and collect the difference as a net credit. If the stock stays on the right side of the short strike until expiration, both options expire worthless and you keep the credit. The long option caps the loss if it does not.
What is the max loss on a credit spread?
The difference between the strikes minus the credit received, times 100 per spread. A 5-point-wide spread opened for a $0.84 credit can lose at most ($5 - $0.84) x 100 = $416, before fees.
What is the difference between a bull put spread and a bear call spread?
Both are credit spreads with a fixed maximum loss. A bull put spread sells a put and buys a lower one, and profits if the stock stays above the short put. A bear call spread sells a call and buys a higher one, and profits if the stock stays below the short call.
Are credit spreads a good strategy?
They are a defined-risk way to sell premium, not a reliable source of income. A credit spread often makes a small profit but risks several times that amount, so a single maximum loss can erase many wins. Size each trade by its maximum loss, not by the credit.