Bull Put Spread
Prerequisite strategies: you must have traded the cash-secured put and the long put with real money, and been assigned at least once. Clear the Level 2 gate first — it needs a margin account, spread permission and a live IV rank source. Next: the bear call spread, then the iron condor.
Why this structure exists
Everything in Level 1 has its risk set by collateral. A cash-secured put on BP at 510p ties up £5,100, because that is what the shares cost if they are put to you, and the loss runs with the share price all the way down. The bull put spread breaks that link. Buy a 490 put against the 510 put you sold and the worst case stops being a function of how far BP falls and becomes one number you chose at entry: width minus credit. Twenty pence of width, 5.75p of credit, 14.25p of loss — £142.50 per 1,000-share contract, whether BP finishes at 489p or at zero.
That is the organising idea of the whole tier, and on ICE it is not a refinement but the difference between trading and not. A UK single-stock option is rights over 1,000 shares, so collateralised structures need five-figure sums per contract. Defined by construction, the same view costs £200 of buying power. The trade is not safer — the risk is countable, and 25 times smaller per contract.
The nearest simpler alternative is that cash-secured put. Why not just do that instead? Because it charges £5,100 for a maximum profit of £122.50, and hands you 1,000 shares you may not want plus 0.5% stamp duty on them. The spread's honest cost is that the long put is dead money in every scenario where BP behaves.
Construction
| Leg | Buy / Sell | Quantity | Strike rule | Expiry rule | Target delta | Price |
|---|---|---|---|---|---|---|
| Put | SELL (credit) | 1 contract = 1,000 shares (ICE UK); 100 (US) | First listed strike at 0.25–0.35 delta below spot | 30–50 DTE; never a weekly | −0.32 | 12.25p = £122.50 |
| Put | BUY (debit) | 1 contract, same expiry | The strike that makes width − credit fit your 2% risk cap | Same expiry as the short leg | −0.20 | 6.50p = −£65.00 |
| NET | Net credit | 1 vertical | 510 / 490, BP at 530p | 45 days | +0.12 per share | 5.75p = £57.50 |
Both legs must share an expiry, or you have built a calendar and the risk is no longer the width. Three hard inequalities before the order goes in:
Formulas for any vertical: max profit = net credit × contract size. Max loss = (width − net credit) × contract size. Breakeven = short strike − net credit. Buying power = width × contract size, against which the credit is already in your cash, so the new capital consumed is the max loss.
The whole trade lives in 20p of BP. From keeping every penny at 510p to losing every penny at 490p is 3.8% of the share price, and one profit warning crosses it in a session. The dashed line is the position today: above the payoff on the downside, below it on the upside, because a credit only arrives with time.
Entry criteria
| Gate | Rule | Reason |
|---|---|---|
| IV rank / percentile | IVR ≥ 30 to sell this; below 25, buy a debit spread instead. Both measured on a 12-month range | You are short £1.47 of vega a point. At IV 30% (IVR 50 on a 20–40% band) the spread pays 5.75p; at IV 22% (IVR 10) it pays 4.50p — 22.5% of the width, with commission taking 12.4% of that |
| Credit vs width | Credit ≥ 25% of the width, at a short delta of 0.35 or lower | If the chain will not pay it, implied volatility is too low — the IV rank gate saying no in a second language |
| Days to expiry | 30–50 at entry, closed at 21 | Gamma at a tested short strike runs from −0.00056 at 45 DTE to −0.02258 at 2 DTE. The last three weeks are unpaid risk |
| Strikes | Short at 0.25–0.35 delta; long at the width that makes the max loss fit 2% of the account | Delta picks the odds, width picks the loss. Two decisions, and beginners fuse them |
| Liquidity | Bid-ask ≤ 10% of mid on each leg; open interest ≥ 100 on both | You pay the spread four times. ICE UK single-stock series are far thinner than US chains and routinely fail this |
| Underlying | A FTSE 100 name you would accept 1,000 shares of at the short strike | ICE UK series are physically delivered and American style. Assignment is a real morning, not a footnote |
| Event calendar | No results, trading statement, ex-dividend date or index review inside the window | A credit vertical is short gamma into a gap it was not paid for |
Do not enter if: IV rank is below 30 — selling cheap premium is not a mild inefficiency, it removes the only edge the trade has, and the answer is a debit spread or no trade; the credit is under 25% of the width; the max loss at your size exceeds 2% of the account; you hold a cash account or lack spread permission; results fall inside the window; or you would not willingly own 1,000 shares at the short strike.
Greeks at entry and how they evolve
| Greek | Entry, 45 DTE, 530p | 22 DTE, unchanged | 7 DTE, unchanged | +1 SD (586p, IV 27%) | −1 SD (474p, IV 35%) |
|---|---|---|---|---|---|
| Delta (per share) | +0.122 | +0.149 | +0.140 | +0.035 | +0.122 |
| Gamma | −0.00141 | −0.00321 | −0.00855 | −0.00111 | +0.00069 |
| Theta (£ per day) | +£0.41 | +£1.02 | +£2.88 | +£0.36 | −£0.34 |
| Vega (£ per vol point) | −£1.47 | −£1.63 | −£1.38 | −£1.27 | +£0.67 |
| Position mark | £58.31 | £43.53 | £17.68 | £9.50 | £134.30 |
Black–Scholes at 30% implied volatility unless stated, 4% rates, no dividend inside the window, per one 1,000-share contract. One standard deviation over 45 days is 55.8p. Signs are for the net position.
Vega decides whether this trade should exist; gamma decides what being wrong costs. The bold column is the one to read twice. At −1 SD, BP at 474p, the position has fallen through the long strike and every Greek has changed sign: gamma is positive, vega is positive, and theta is negative £0.34 a day. You are no longer renting out time, you are paying for it, and you now need volatility to rise and BP to rally before expiry. That is the character flip, and it happens at the long strike rather than at any level you were watching. Before it, the position is a slow theta business earning £0.41 a day against £142.50 of exposure. After it, it is a long-gamma bet on a bounce that you did not choose to place.
BP p.l.c. at 530p, and you need it not to fall more than 4.9%
The ICE Futures Europe BP option is quoted in pence per share; one contract is rights over 1,000 shares; it is American style and physically delivered; the tick is 0.25p (£2.50); the last trading day is the third Friday at 16:30 London, 16 October 2026 here; and a holder may exercise to 18:30 London on any business day. Entered 45 days out, on 1 September 2026.
The trade: sell 1 × BP October 2026 510 put at 12.25p, buy 1 × BP October 2026 490 put at 6.50p.
Branch A — the target fires. BP 545p on 22 September 2026, 24 days left, IV eased to 27%.
Branch B — the short strike is tested. BP 510p on 16 September 2026, 30 days left, IV up to 34%.
Branch C — assigned overnight. BP gaps to 468p on a trading statement, 9 days left, IV 40%. The short 510 put is worth 42.74p, of which 42.00p is intrinsic and 0.74p is extrinsic. Under 1p, a rational holder exercises, and you find out at breakfast.
Exercising that long put instead, to "keep it simple", sells the shares at 490p and gives the £37.50 away: −£170.80, or £33.10 worse. And overnight the £142.50 requirement became a £5,100 share purchase — roughly £1,275 of buying power at a 25% rate, 8.9 times more, on a margin loan until you act.
Branch D — held to the last trading day, BP at 455p. Assigned on the 510, you exercise the 490: buy at £5,100, sell at £4,900. With the credit and £25.50 of SDRT that is −£170.80 against −£148.10 for closing in the market. Delivery costs £22.70 and adds 17.9% to a textbook maximum loss that does not know stamp duty exists.
On a US underlying instead — 100 shares a contract, deeper chains, the route most UK readers actually take — the gain is still computed in sterling and the two FX legs are struck on different dates. A $120 credit at GBP/USD 1.3552 fixes £88.55 of grant proceeds the day you sell; buying it back for $60 with the rate at 1.3200 costs £45.45, not the £44.27 an unchanged rate would have given. Dollar profit 50%, sterling profit £43.09. The £1.18 is currency, and the conversion spread lands on top, twice.
This is a single, hand-picked, favourable scenario. It is not a typical or expected outcome. Premiums are modelled from Black–Scholes at the stated inputs, not taken from a live chain; 530p is an illustrative round number and real listed strikes may differ. Under the model that prices it, a credit spread has no edge at all — the only edge on offer is that implied volatility exceeds the volatility that follows, which is what the IV rank gate is trying to buy. Past performance, including any illustrative example shown here, is not a reliable indicator of future results.
Management and adjustment
| Trigger | Diagnosis | Action | Do NOT do this |
|---|---|---|---|
| Short strike touched intraday | Delta has grown; a range trade is turning directional | Nothing yet. Judge it on the close | Adjust on a wick. You pay the spread four more times for a level that did not hold |
| Short strike breached on a closing basis | The thesis is wrong, not early | CLOSE. −£33.10 at 30 DTE against a £142.50 max loss | Wait for a bounce. Short strike to full loss is 20p — 3.8% of BP |
| You want more time | Defensible only if the arithmetic permits | Roll out at the same strikes: November 510/490 for a net £2.50 credit | Roll down and out. November 490/470 is a £20.00 net debit — paying to enlarge a loss you already hold |
| The roll only pays if you widen it | The credit comes from new risk, not from time | Decline it. November 510/470 pays £67.50 and takes the worst case to £275.00 | Call it a credit roll. It is a bigger trade wearing the word "defence" |
| IV expands after entry | A vega loss (−£1.47 a point) that is not yet a delta loss | Hold if BP is above the short strike and the stop is intact; richer options make any later roll pay more | Panic-close on the vega mark alone |
| IV collapses after entry | The thesis paid, early | Take the 2.75p target the day it appears, whatever the DTE | Hold for the remaining theta — £0.41 a day against £142.50 of exposure |
| Short leg's extrinsic value under 1p | Early exercise has become rational for the holder | CLOSE the whole spread that day | Assume European-style safety. ICE BP is American, exercisable to 18:30 London on any business day |
| Ex-dividend date appears in the window | Not the covered-call rule in reverse: a dividend makes early exercise of a short put less likely, and lifts the put's value instead | Re-price it. If the credit no longer clears 25% of the width it is not the same trade | Close a healthy position because you half-remembered the short-call rule |
| Results appear inside the window | Short gamma into a gap you were not paid for | CLOSE before the print | Hold "because it is defined risk". The definition is £142.50 and a gap reaches it in a session |
ROLL WHEN BP is at or just below the short strike, more than 21 days remain, and the order goes through for a net credit at the same strikes and the same width. ROLL TO the next monthly expiry, one decision at a time — never strike and duration in the same order, or you will not know which one worked. DO NOT ROLL a credit spread for a net debit, ever, and do not manufacture a credit by widening: £67.50 that turns £142.50 into £275.00 is not a defence. CLOSE, do not roll, when BP gapped rather than drifted, when the short leg's extrinsic value is under 1p, when the loss reaches the credit received, or when the only roll available fails a test above. Defence on a vertical has a budget: the £57.50 you were paid.
Exit rules
If all four are silent, do nothing and check the close tomorrow. Doing nothing earns £0.41.
Margin and broker reality
A cash account will not hold this, and that is the commonest reason a UK reader's first credit spread is rejected. Cboe's strategy-based margin rules allow limited-risk spreads in a cash account only where every leg is a European-style, cash-settled index option expiring at the same time — which an American-style, physically-delivered ICE BP option is not. In a cash account the long 490 put buys no relief at all: the short 510 put must be secured for its full £5,100, so a £142.50 trade becomes a £5,100 one. You need a margin account with spread permission, obtained through the broker's appropriateness assessment — not the US "Level 1 to 4" ladder quoted all over the internet, which does not describe UK access.
The requirement itself is small and knowable. Under FINRA Rule 4210(f)(2) the long leg is paid for in full and the short leg's requirement is capped at the spread's maximum potential loss, so the broker holds the width — £200.00 — against which your £57.50 credit is already in cash. New buying power consumed: £142.50, the same number as the max loss, and it does not move with the market. Interactive Brokers UK margins ICE series on a risk-based model rather than this schedule, so your own order preview governs; the width is the ceiling either way. What does move is assignment: it removes the definition overnight, turning £142.50 into a £5,100 stock position and roughly £1,275 of requirement at a 25% rate until you sell. And liquidity is a margin-equivalent cost — a 10% bid-ask on each of four legs outweighs every commission on this page, which is why many UK readers run this on the FTSE 100 index instead, where an 8,800/8,750 put spread at £10 a point collects £150 against a £350 maximum loss, cannot be assigned and attracts no SDRT.
contracts × (width − credit) × contract size ≤ 2% of the account, and the credit never counts toward reducing it.What to trade instead
Simpler, from the tier below: the cash-secured put is this trade without the long leg. It keeps the whole £122.50 instead of £57.50 and needs no margin account, and it charges £5,100 of collateral while leaving the downside open to zero. Take it when you actually want the shares.
The same view as a debit: a bull call spread. At identical strikes the two are the same position — the model prices the 490/510 bull call at a 14.07p debit against this structure's 5.83p credit, and the 0.10p gap is 45 days of interest on the width, nothing more. The real choice is between an out-of-the-money credit spread and an out-of-the-money debit one. The 530/560 bull call costs £117.50 to make £182.50, breaks even at 541.75p and needs BP to rise 2.2%; it is long £0.60 of vega where this trade is short £1.47. That is the decision rule in one line: at IV rank 30 and above be the seller of expensive volatility, below 25 be the buyer of cheap volatility, same direction either way.
More precise, at this tier: add a bear call spread above the market and you have an iron condor — two credits, one buying-power requirement, two short strikes to watch.
Portfolio fit
One contract contributes +122 share-equivalents of delta, about £646 of BP exposure, −£1.47 of vega and +£0.41 a day of theta, for £142.50 of buying power — too small to matter and too small to be worth the admin. Three contracts is a position: £427.50 of maximum loss, 1.71% of a £25,000 account, £172.50 of credit, 366 share-equivalents of delta. Eight such positions across eight underlyings is a book — 13.7% of buying power, £1,380 of credit, roughly −£35 of net vega a point and £9.88 a day of theta. Two caps hold it together. A credit-vertical book is short vega everywhere, so it has one risk factor rather than eight and a volatility event marks all of it down together: keep total short vega inside a written number. And all eight can reach maximum loss in the same week, so the honest question is not the expected outcome but whether £3,420 leaving at once is survivable. If it is not, the book is too big however good each entry looked.
Risk statement
Listed options are complex instruments and a defined-risk spread can still lose its entire defined maximum, quickly. This is educational material about mechanics and UK tax treatment, not a recommendation to trade BP or anything else, and it takes no account of your circumstances. Every premium here is modelled rather than quoted, and real fills on thin ICE series are worse. If your trading becomes frequent enough to put the investor-versus-trader boundary in question, that is one for a qualified adviser.