The figure below shows the risk/reward graph for a Bull Put Credit Spread on the Russell 2000 index (RUT). This type of trade is called a credit spread because when we, as a seller, open, or sell, this type of trade, we will collect a credit, also called a premium. When this trade expires, and if the RUT stays above the 610 strike price, the credit spread will expire worthless for the buyer, and we as the seller will keep the premium collected, which is about $500. We would open this credit spread by placing the following order:
Sell 10 contracts, RUT 610 strike, January 2006 Put
Buy 10 contracts, RUT 600 strike, January 2006 Put
Or alternatively:
Sell 10, RUT 610 Jan 06 Put
Buy 10, RUT 600 Jan 06 Put
Or alternatively:
10 RUT Jan 06 600/610 Bull Put Spread
Maintenance requirement for this trade is $10,000. ($1k required per spread)
Bull Put Credit Spread
The figure below shows the risk/reward graph for a Bull Put Credit Spread on the Russell 2000 index (RUT). This type of trade is called a credit spread because when we, as a seller, open, or sell, this type of trade, we will collect a credit, also called a premium. When this trade expires, and if the RUT stays above the 610 strike price, the credit spread will expire worthless for the buyer, and we as the seller will keep the premium collected, which is about $500. We would open this credit spread by placing the following order:
Sell 10 contracts, RUT 610 strike, January 2006 Put
Buy 10 contracts, RUT 600 strike, January 2006 Put
Or alternatively:
Sell 10, RUT 610 Jan 06 Put
Buy 10, RUT 600 Jan 06 Put
Or alternatively:
10 RUT Jan 06 600/610 Bull Put Spread
Maintenance requirement for this trade is $10,000. ($1k required per spread)
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