What Is a Bull Put Spread Screener?
Bull put option spreads can provide lucrative opportunities and also limit potential losses for investors who do thorough research. In order to do that thorough research, many investors use screeners. Bull put spread screeners analyze bull put credit spreads, which have long and short put options, called legs. They review bull put spreads based on criteria like potential profits and losses, break-even probability, expiration dates, and strike prices of the first and second legs.
- Options spreads enable investors to profit from stock price moves while limiting the risk of losing money. Bullish spreads allow investors to give up some profit potential in exchange for less risk.
- Options screeners are free or paid tools that analyze potential profits, risks, leg strike prices, and other data relevant to investment decision-making.
- Using a screener’s results can help investors focus on investment decision-making rather than researching individual options spreads.
What Are Options Spreads?
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Options spreads are available in puts or calls and have two legs. Both legs must either be puts or calls, with one long and one short. Options spreads are different than trading stocks because spreads limit losses. Investors can profit from small movements or no change in the underlying security’s price. Spreads pose less of a risk, but investors also realize smaller gains.
Bull put credit spreads are investments where investors anticipate the underlying stock or security to go up in value. Classified as short put options, they involve selling a put and buying another put at a lower strike price with matching expirations. Proceeds from this type of trade are the credit or premium received or the difference between the short put and long put. Profits are limited, but so are the risks. Strike value minus the credit are the risks. Profit is gained when the underlying security’s price goes above the higher or sold strike upon expiration.
What Are the Types of Spreads?
Spreads can be vertical, horizontal, or diagonal.
- Vertical spreads: These spreads have two legs with identical expiration dates but different strikes. Generally, the short leg is in the money (ITM), and its proceeds can fund or offset buying the long leg.
- Horizontal spreads: Also known as calendar spreads, these have two legs with the same strike price but different expiration dates. The short leg has the short term due to time decay. Investors may roll the short leg forward at or near its expiration by selling the next month’s options at an identical strike. Investors may also close the position by selling the longer leg when the short leg expires.
- Diagonal spreads: Diagonal spreads have two legs with different strike prices and different expirations. They have different purposes, ranging from profiting from time decay or discrepancies in volatility. Diagonal spreads may also be used to roll out other positions, like straddles, or as part of more complex strategies, like butterflies or collars.
How Do Investors Maximize Spread Returns?
Investors can make money on the premium difference between two options contracts. Spread traders may seek to sell the expensive leg of a spread to collect a premium on the time and buy a cheaper leg to limit a potential loss. Time premium correlates to the cost of an option. Time value incorporates implied volatility and other factors.
Trading spreads is more profitable when the time value for the short leg is greater than that of the leg to be purchased. To find the best deal, investors consider time premium and implied volatility of the legs and seek spreads with time premiums greater for the short leg. The short leg will lose value more rapidly than the long leg, increasing the profitability of the transaction.
What Is an Options Screener?
Options screeners are vital tools that analyze potential trades and organize that data in tables that traders can sort and filter. Investors save a lot of research time by using screeners, which helps them focus more on trading decisions, like the best shares and strike prices. Screeners are especially helpful for spreads since there are numerous configurations and possibilities for investments. Investors can customize their searches to meet their needs and yield relevant results.
Options screeners are available from brokerages or other sources online, and investors can choose free or paid screening tools with different features. Paid versions have more features and options for gathering data, saving searches, and generating results, though free screening tools also offer plenty of advantages. Screeners typically seek spreads with higher premiums on the short leg. They don’t usually focus on the probability of a stock going up in price because that characteristic has already been defined if it’s on a bull call report.
Seek spreads where potential gains are higher than the amount of money risked. The spread, which shows the difference between the strike values, is the maximum value the spread will have. Calculate the maximum possible money loss, and if half the transactions create profit, the overall strategy will earn money.
Spread screeners analyze possible combinations for spreads using technical analysis of pricing data. They don’t analyze the underlying stock’s fundamentals or market conditions. Screeners help investors narrow down choices and are one of the many tools and resources that should be used before pursuing an investment.
Screeners detail maximum loss potential, allowing investors to assess the spread’s risk easily. Risk is the difference between the strike price and the sale price of the credit spread. Some put spreads have a downside cushion, which shows how far the underlying stock can fall before the spread loses money.
How Investors Pick Bull Put Spreads
Bull put spreads are usually bullish to neutral. Traders will want to focus on underlying stocks that will go up or remain stable. They seek the investment with the highest chance of success and return on investment (ROI). This requires analyzing data or customized information the screener formats in a table according to individuals’ investment needs and goals.
The bull put spread screener should provide all the relevant information in that table, which the investor can then analyze according to various criteria to find good investment candidates. Evaluation criteria vary from trader to trader but typically focus on potential earnings, risks, and strike prices. Spread screeners allow traders to customize their search results for easy evaluation.
Many traders use maximum loss as a starting point for comparing similar bull put spreads. This information is readily available on screeners and can be the first step in sorting data and customizing searches of spreads.
Once investors decide their maximum loss threshold, they need to use the results to determine whether the maximum gain is worth the risk involved. Risk information and thresholds are readily available for spreads in the screener.
Delta, which is the chance an option will expire in the money, might be a bull put screener criterion depending on the screener used. This number is the probability that the options legs will be in the money by expiration, meaning the chance the options could make or lose money.
Investors usually understand the risk and reward possibilities of bull put spreads but often have trouble deciding on strike prices and how wide to make the spreads. They need to consider expiration dates as well. Screeners provide much of this information, with the next move being interpreting the results and selecting the best investments.
Bull put spreads are versatile investment options that swap profit potential for reduced risk. Bull put spread screeners are a helpful tool for researching potential investments. As with many investment technologies, features vary, and paid versions offer more potential for research and analysis.