Sell a put, buy a cheaper one below it, and take the difference as a credit on day one. Nothing more will ever be earned: the entire trade is keeping that credit by having the underlying finish above the short strike. The long put is insurance on your own short, turning an obligation with no natural limit into a fixed number you can size a position against. Being an income structure, the arithmetic looks deliberately unattractive — many small wins against occasional large losses — and the discipline lives entirely in size. Price both strikes here and read the maximum loss before the credit, not after it.
The short leg is the one whose bid/ask to check first, since it is usually the less liquid of the two strikes and the one a fill price actually depends on. Brokers margin this as the width minus the credit, held as buying power rather than posted in cash, so the return quoted on the credit alone overstates the return on capital actually tied up. Closing early — buying back both legs before expiry — avoids the week where gamma risk is highest, at the cost of some of the remaining credit.
Size this by the maximum loss (width minus credit), never by the credit alone — a $280 credit against a $720 maximum loss is a very different commitment of capital than the $280 figure suggests on its own. Most platforms require the full maximum loss as buying power even in a margin account, since the position's risk is genuinely capped rather than merely usually small. A common practice is capping any single credit spread at a small fraction of account equity, precisely because the loss-to-credit ratio here is structurally lopsided.
Common mistake. The common mistake is chasing a larger credit by narrowing the strike gap, which raises the probability of a total loss on the position by more than the extra credit compensates for.
| # | Action | Instrument | Strike |
|---|---|---|---|
| 1 | Sell | Put | 570 |
| 2 | Buy | Put | 560 |
Computed from the same strikes and net premium as the worked example above — not a simulation, the closed-form payoff evaluated at each price.
| SPY at expiry | P&L |
|---|---|
| 545 | -$720.00 |
| 555 | -$720.00 |
| 565 | -$220.00 |
| 575 | $280.00 |
| 585 | $280.00 |
| 595 | $280.00 |
| Strategy | Market view | Opened for | Legs vs. this one |
|---|---|---|---|
| Bull Call Spread | Bullish — moderate, defined range | Debit | same |
| Bear Call Spread | Bearish to neutral — income | Credit | same |
| Iron Condor | Neutral — range-bound | Credit | +2 |
| Cash-Secured Put | Neutral to bullish — income or acquisition | Credit | -1 |