So I understand how the Bull Call spread works, but flipping it over to the Bull Put spread, here is my understanding so far:
-Still involves Selling the high strike put + buying the low strike put.
-Max Gain = P(high) - P(low)
-Max Loss = X(high) - X(low) - [P(high) - P(low)]
Is this logic correct? Schweser guides seem to only explain Bull Call spreads, but doesn’t really touch the Bull Put spread mechanics.
Logic is right. For the max loss you just want to look at the width between the short and long strike and take out the premium received. For example, you sold the 110P, bought the 90P and collected a net premium of $5. Max loss = $20 width less the $5 premium = $15. Max profit is of course the $5 premium assuming the underlying closes above your short strike.
Yea I’m really curious why the debit spreads were covered (bull call & bear put) but not the credit spreads (bull put & bear call). Especially bc I understand the world of option traders that are historically profitable are net sellers (mostly take positions for credits not debits) bc implied Vol is greater than realized Vol