There are two stocks showing up on my scanners for having very strong price action in recent weeks. CrowdStrike Holdings (CRWD) and Palo Alto Networks (PANW) could both be good candidates for bull put spreads trades.
To execute a bull put spread, an investor would sell a naked put and then buy a further out-of-the-money put to create a spread.
A bull put spread is considered less risky than a naked put, because the losses are capped thanks to the bought put.
The following trades are short-term and high risk, so should only be considered by experienced option traders.
CRWD Bull Put Spread Example
CrowdStrike Holdings hit a new high on Wednesday and continues to show signs of accumulation.
CrowdStrike Holdings is rated as a Strong Buy according to 33 Analysts with 3 Moderate Buy ratings, 12 Hold ratings and 2 Strong Sell ratings.
Selling the November put with a strike price of $230 and buying the $220 put would create a bull put spread.
This spread was trading for around $1.55 yesterday. That means a trader selling this spread would receive $155 in option premium and would have a maximum risk of $845.
That represents a potential 18.34% return on risk between now and November 20 if CRWD stock remains above $230.
If CRWD stock closes below $220 on the expiration date the trade loses the full $845.
The breakeven point for the bull put spread is $228.45 which is calculated as $230 less the $1.55 option premium per contract.
In terms of a stop loss, if the stock dropped below $235, I would consider closing early for a loss.
PANW Bull Put Spread Example
Palo Alto Networks (PANW) is another stock showing incredible strength and is just 1,82% below an all-time high.
Palo Alto Networks is rated as a Strong Buy according to 38 Analysts, with 3 Moderate Buy ratings and 14 Hold ratings.
Selling the November 20 put with a strike price of $340 and buying the $320 put would create a bull put spread.
This spread was trading for around $2.90 yesterday. That means a trader selling this spread would receive $290 in option premium and would have a maximum risk of $1,710.
That represents a potential 16.96% return on risk between now and November 20 if PANW stock remains above $340.
If PANW closes below $320 on the expiration date the trade loses the full $1,710.
The breakeven point for the bull put spread is $337.10 which is calculated as $340 less the $2.90 option premium per contract.
In terms of a stop loss, if the stock dropped below $350, I would consider closing early for a loss.
Bull put spreads let traders generate income from a stock they're neutral-to-bullish on, collecting premium upfront while defining their maximum risk from the outset. Unlike naked puts, your worst-case loss is known and capped. They also profit in multiple scenarios: the stock can rise, trade sideways, or even drift down slightly and still deliver the full profit, as long as it stays above the short strike at expiration.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.