Put Credit Spread Strategy: Setup, Strikes and Exits

By Stephen Manning · @StephenCFU on X · 2026-05-02 · 15 min read

A put credit spread strategy step by step: pick the underlying, use 21 to 45 days and a 0.20 to 0.30 delta short put, size by max loss and exit by rule.

Last updated: October 1, 2026

A put credit spread is a two-leg trade: you sell a put and buy a cheaper put below it, collecting a credit up front, and the most you can lose is the width between the strikes minus that credit. It pays when the stock stays above your short strike, so the work is choosing the underlying, expiry, strikes and exit rules before you enter.

This is the playbook I use for every one I place: five steps, two worked examples, how spread width changes your risk, the expiration-day trap called pin risk, and what 347 closed spreads in our own record actually look like.

Traders skip this because it sounds complex. It isn't. The structure is simple, the risk is defined before I click submit, and the probability math tilts in my favor when I set it up correctly.

What is a put credit spread?

A put credit spread (also called a bull put spread) sells a put to collect premium and buys a cheaper put at a lower strike, same stock and same expiry, to cap the risk. Think of it like being an insurance company. You collect a premium for providing coverage (the put you sell), and you buy reinsurance (the cheaper put) so one disaster can't sink you. The difference between the premium you collect and the premium you pay is your net credit. If the stock finishes above your short strike at expiration, both puts expire worthless and you keep all of it.

• Short put (the money-maker): where I collect premium. It is my obligation to buy the stock at this strike if I am assigned.
• Long put (the insurance): cheaper protection below it that caps the loss.
• Net credit = premium collected minus premium paid. This is the max profit.
• Max loss = (width between strikes minus net credit) × 100, per contract.
• Breakeven = short strike minus net credit.

If credit spreads are new to you, credit spreads for beginners covers the whole family.

At CFU we put it this way: we are not stock pickers; we are probability managers.

Three reasons the put version does the heavy lifting in my account:

• Theta is your payroll. Options are decaying assets. Every day that passes, time decay erodes the value of the spread I sold, pushing it toward its max profit.
• You have three ways to be right. I make money if the stock rises, chops sideways, or even drifts down a little, as long as it stays above my breakeven by expiration. Option buyers need the stock to move their way. I just need it not to fall too far.
• The odds start on your side. With the short put at 20 to 30 delta, the odds favor the seller on each trade, and the long put caps the cost of the trades that lose.

The 5-step put credit spread playbook

This is the process I follow for every income trade.

Step 1: Pick the right underlying

I focus on highly liquid stocks and ETFs so I can get in and out at a fair price. My watchlist is short: SPY, QQQ, IWM, and a handful of mega-cap stocks like AAPL or GOOGL. Broad-market ETFs remove single-company news risk, and they have deep, tight option markets. Wide bid-ask spreads eat your credit before theta can do anything.

• Bid-ask spread on the short strike: ideally $0.05 or less
• Open interest on each leg: 1,000+ contracts
• Earnings check: on a single stock, look for an earnings release or major company event before your expiry. I don't hold through those binary events; the premium isn't worth the gap risk.

Step 2: Choose your expiration

The 21 to 45 days-to-expiration (DTE) window balances premium against risk. In this range theta decay is meaningful, so quiet days pay, without the intense gamma risk of short-dated options.

Weeklies (7 DTE or less) offer juicy premium, but gamma (the rate at which delta changes) is a coiled spring. A sharp move against you swings the spread's price fast. If you trade weeklies, size smaller and be ready to manage the position actively.

Step 3: Select your strikes

I anchor the short put near 0.20 to 0.30 delta, which keeps the odds in my favor while still paying a worthwhile credit. Delta is a quick proxy for the chance an option finishes in the money: a 25-delta put has roughly a 25% chance of finishing in the money, which leaves about a 75% chance it expires worthless. Your probability of profit is a little higher than that, because it is measured at your breakeven, not at the strike.

New traders often sell too close to the money, chasing a bigger premium. A 50-delta short put might collect three times the premium of a 25-delta, but it is a coin flip on finishing in the money. That is not a high-probability trade, and the bigger credit doesn't make up for it.

• Typical width: $2 to $10, depending on the stock's price and the dollars you are willing to risk.
• Example on a $500 stock: sell the $470 put (25 delta), buy the $465 put. That is a $5-wide spread.

Step 4: Collect the credit and size by max loss

I enter with a limit order at or near the mid-price between the bid and ask, never a market order. A market order sells your short put at the bid and buys your long put at the ask, giving away the bid-ask spread on both legs.

The credit is your pay for the width you risk, so read it as a ratio. Collect $1.00 on a $5-wide spread and you risk $4.00 to make $1.00, or $400 to make $100 per contract. Collect $0.80 and you risk $4.20 to make $0.80. Higher implied volatility pays more for the same strikes. If the credit at your delta is too thin for the width, skip the trade.

Then size it by the max loss, not the credit. I risk 1 to 2% of the account per trade, measured as the max loss. On a $25,000 account, 2% is $500: one $5-wide spread with a $400 max loss fits, two do not. The sizing guide works through how many contracts to trade as the account grows.

Step 5: Manage the trade by the numbers

I manage every trade with exit rules set before entry, which takes emotion out of the decision. Hope is not a strategy. I harvest gains early and cut losses without debating them.

• Take profits (the 50% rule): close when I've made half the credit. If I collected $1.00, I place a GTC order to buy the spread back at $0.50 right after my entry fills. Managing winners at 50% frees capital and cuts the time a winner has to turn into a loser. If you are weighing 50% vs 80% profit targets, that guide runs both on the same trade.
• Cut losses (the 2x rule): if the spread's price doubles, I close it. Collect $1.00, and the stop is when it costs about $2.00 to buy back, a loss roughly equal to the credit. One stopped trade costs about what two winners at target make, which is why strike selection in step 3 matters so much.
• The expiration rule: close with 7 to 10 days left, even if neither target has hit. The last week is where the profit left is smallest and gamma risk is largest.
• Rolling, once at most: closing at the stop is the default. A single roll is the only alternative, and only on the terms in the rolling FAQ below. If a rolled spread is threatened again, I close it.

Two worked examples: SPY and QQQ

Concrete beats theory. Here are two setups I'd take, worked through to the exit orders. Both are illustrative examples, not trades from our record.

In both, the stock can fall about 4 to 5% before the breakeven is touched at expiration. But I don't wait that long. If the trade works, the GTC order fills at the target and frees the capital for the next setup; if it hasn't by 7 to 10 days out, the expiration rule takes me out anyway.

Notice that each trade risks more than four times its credit. That ratio is normal for this structure, and it is exactly why the stop and the position size are decided before entry, not after the stock starts falling.

Spread width and max risk

Width is the lever that sets your dollar risk. Here is the QQQ trade above with the same 420 short put and three different long puts. The credits are illustrative.

The credit grows more slowly than the width, because each extra dollar of width sits further out of the money. The $10 spread collects three times the credit of the $2.50 spread but risks more than four times the dollars. Neither end is the "safe" one: the wider spread moves your breakeven down a little and puts more money on the line. Pick the width your account can carry at 1 to 2%, then size from the max loss column.

The premium is not the objective. Survival is. Defined risk keeps me in the game long enough for the probabilities to work.

Naked puts pay more, but one bad move can erase months of gains. My long put caps the damage, and if I can't name the exact dollar loss before entry, I don't take the trade.

Pin risk at expiration

Pin risk is the uncertainty you carry when the stock closes right around your short strike on expiration day. A put that finishes even $0.01 in the money is usually exercised automatically, so your short put gets assigned. The holder can also decide after the close, if after-hours news moves the stock, so you may not know until the weekend whether you've been assigned.

Your long put is never assigned; it is yours to exercise, and it is exercised automatically only if it finishes in the money. That creates the trap. If the stock closes between your strikes, the long put expires worthless while the short put is assigned, and you own 100 shares per contract over the weekend with no protection under them. A gap down on Monday can then cost more than the spread's max loss. Here is more on what happens when an option expires in the money.

When not to use it

A put credit spread is a way of selling insurance, so it needs insurance to be priced richly and the risk to be measurable. High implied volatility makes options expensive, so you collect more for the same strikes, and implied volatility often overstates the moves that actually follow. The flip side: a market pricing big moves is also the one most likely to test your short strike. Skip the trade when:

• Implied volatility is low. With IV Rank below 20, the credit is often too small to justify the width you are risking. Wait for premium to come back.
• A binary event sits inside your expiry. Don't hold a single-stock spread through earnings, an FDA decision or similar company news; a gap move breaks the probability model. ETFs like SPY and QQQ have no earnings, but know when Fed decisions and inflation reports land before your expiry, and size so a gap through your short strike is a loss you've already accepted.
• The stock is breaking down. The trade needs a neutral to bullish view. Selling put spreads under a stock in a clear downtrend is betting against the trend you can see.
• One contract is too big. If the max loss on a single contract is more than 2% of your account, use a narrower spread or pass.

What 347 closed spreads in our record look like

The playbook is the plan. Here is what the trade has looked like in practice, across 347 put credit spreads from our audited record. It is our most-used structure, 31% of every trade we have placed.

• Width: $5 wide is the default, 195 of the 347.
• Timing: we open them a median 26 days from expiry and hold them a median 17 days, so the typical spread closes with a week or so still on the clock. That is the expiration rule in practice, and here is why we close spreads with a third of their life left.
• Trouble: 259 needed nothing. 88, about one in four, needed at least one roll, and some needed several. The worst, a TSM spread meant to last nine days, was rolled nine times over six months.

Rolling usually made the problem bigger, not smaller: 72 of the 88 rolled spreads came out wider, carrying more risk than they started with. That history is why our rule going forward is one roll and done, or none.

Every closed trade, losers included, is in our audited performance record.

Practice first: a paper-trading checklist

Place 10 paper trades before you risk real money. For each one, check that you:

1. Picked a liquid underlying with a tight bid-ask spread.
2. Confirmed no earnings or company event before expiration.
3. Chose an expiry 21 to 45 days out.
4. Sold a short put between 0.20 and 0.30 delta.
5. Wrote down the max profit, max loss and breakeven.
6. Sized it so the max loss is 1 to 2% of the account.
7. Set a GTC order to take profit at 50% of the credit.
8. Set an alert for the 2x stop and a calendar note for 7 to 10 days before expiry.
9. Decided in advance whether this trade gets its one roll, and on what terms.
10. Journaled the entry and the exit plan.

To check your builds against a finished one, see how the free PCS-100 scanner builds the whole trade, from strikes and expiry to the limit credit and the dollars at risk.

For the journal entry, here is how to track a put credit spread as one trade.

Put credit spread FAQ

How much buying power do I need to trade a put credit spread?

Your buying power requirement is typically the max loss. For a $5-wide spread that collects $0.80, the broker will hold about $420 per contract. That is also the number to size against: at 2% risk per trade, a $420 max loss suits an account of about $21,000 or more.

Can I lose more than the width of the spread?

Not while both legs are in place: the most you can lose is the width minus the credit, fixed the moment you enter. The exception is when the legs come apart, for example a short put assigned at expiration while the stock sits between your strikes, so the long put expires worthless and you hold the shares unprotected. Close spreads that are near the short strike before expiration and the cap holds.

What happens if the stock is below both strikes at expiration?

You take the max loss. Your short put is assigned and your long put is exercised automatically, so on the SPY example you buy 100 shares at $500 and sell them at $495 per contract. The shares cancel out, and the loss is the width minus the credit, $420 per contract. Under my rules the stop or the expiration rule closes the trade well before this point.

What if I get assigned on my short put before expiration?

Early assignment on a short put is uncommon while the put still has time value. It becomes more likely when the put is deep in the money with little time value left, usually close to expiration. If it happens, you own 100 shares per contract at the short strike and your long put still protects you: sell the shares and the long put together, or exercise the long put. Check your buying power, because holding the shares can take more capital than the spread did, even though the risk is still capped.

Is a put credit spread the same as a cash-secured put?

No. A cash-secured put sets aside the full cost of the shares, about $50,000 for a $500 strike, while a $5-wide put credit spread on the same stock ties up only its max loss of a few hundred dollars. The bigger difference is risk: a cash-secured put is not defined-risk, because your loss keeps growing all the way down to a stock price of zero, less the premium, while the spread's loss stops at the width minus the credit. If you want to own the shares, the cash-secured put does that job; if you want capped risk, use the spread.

How do I roll a put credit spread?

You buy back the threatened spread and sell a new one at a later expiry, at the same strikes or lower ones, as a single order. Our rule is one roll and done, or none: roll only at even or for a net credit, and only if the new max loss still fits inside 1 to 2% of your account. If the rolled spread is threatened again, close it. Don't roll a breached put spread up, because that moves your short strike deeper in the money. The full walkthrough, with the arithmetic, is in our guide to rolling credit spreads.

Trade it with us

The put credit spread is the structure we use most. The setup is simple, the risk is defined, and the odds favor the seller when you respect the rules. Reading is step one; executing with discipline is the edge.

At Cash Flow University I trade these with 1,200+ traders. Every alert is posted in real time with the risk, target and stop stated, every closed trade goes into an audited record, and each one comes with the reasoning behind it, not just a ticker. If you want the process I use, learn more at joincfu.com.

Filed under: Credit Spreads, Risk Management

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