A cash-secured put with a floor bolted on — far less capital, and no shares at the end.
2 min read
A put credit spread — also called a bull put spread — is a cash-secured put with the tail cut off. You sell a put, and simultaneously buy a cheaper put at a lower strike. The bought put costs some of your premium and in exchange caps your loss at a known number.
A $5-wide spread
Stock at $52. Sell the $50 put for $1.20, buy the $45 put for $0.40.
Net credit: $0.80 = $80 per spread.
Width: $50 − $45 = $5. Collateral required: (5.00 − 0.80) × 100 = $420.
Max profit: $80 if the stock is above $50 at expiration.
Max loss: $420, at $45 or below — no matter how far it falls.
Breakeven: $50 − $0.80 = $49.20.
| Cash-secured put | Put credit spread | |
|---|---|---|
| Capital | $5,000 | $420 |
| Premium | $120 | $80 |
| Return on capital | 2.4% | 19% |
| Max loss | $4,880 (to zero) | $420 |
| If it drops hard | You own shares | You lose the $420 and it's over |
| Feeds the wheel? | Yes — assignment starts the cycle | No — you never get shares |
Higher percentage return is not higher expected return
19% on $420 is $80. 2.4% on $5,000 is $120. The spread wins on capital efficiency and on worst case; it loses on absolute income per trade. Which is better depends entirely on whether the free capital does something useful.
The spread is the better instrument when you want premium but genuinely don't want the shares — a stock you find attractive but wouldn't hold, or an account too small to secure the put outright. It's the worse instrument for the wheel, because the wheel runs on assignment and this structure is built to prevent it.
Defined risk still means losing everything you put up
Max loss on this spread is $420 against $80 collected — you can lose five times the credit in a single move. Traders drawn to "defined risk" often size up because the number sounds contained, which produces exactly the same account damage as an unhedged position that was sized properly. The defined part is the ceiling, not the likelihood.
Not tracked in Wheel Folio yet
Multi-leg positions need their own model — two legs, a combined collateral figure, and a max loss the app should show you. Logging a spread as two unrelated single-leg trades would misstate both the capital at risk and the P&L, so it isn't supported rather than being supported badly.
Educational only
Nothing here is investment, financial, or tax advice. Options carry risk, including losing more than the premium collected, and the examples use round numbers to show the mechanics rather than to suggest a trade. Read risk and position sizing before putting real money behind any of it.