Lets assume I would like to trade a Bull Put Spread on a stock from which I think it will go up moderately.

I therefor buy 1 OTM put & sell 1 ITM put option, both having the same expiration time.

I choose the premium of the long put to be OTM but close to ATM, to reduce risk. I then choose the premium of the short put so it is deep ITM.

  1. Shouldnt that result in a high chances of winning by having heavily reduced the risk of loss? What is the downside of this setup (besides the high entry costs)?

  2. My broker does not support multi-leg orders. How would I enter this trade? Simply buy to open and sell to open one after the other?

  3. How would I exit this trade? Would I just let them expire and 'see' how it turns out?

What other critical information I am missing here?

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2 Answers 2


If your broker does not support multi-leg orders then you are trading with one hand tied behind your back. A combination order order serves several purposes.

1) If your trade is executed, you will receive at least the net price specified and once in awhile, more.

2) You avoid leg in risk. When legging into positions, you may get a better or worse fill on the second leg.

3) Combo orders allow you to split the bids and ask for a better net execution price. You're likely to get some price improvement if the B/A spread on each leg isn't narrow.

The inexperienced should always enter the long leg first and then complete the combo order by selling the short leg which carries the risk. When you have sufficient experience AND you are a disciplined trader, if you are legging in, work the leg with the most premium and the widest B/A spread. IOW, if selling an ITM put for $2 with a 25 cent B/A spread and buying and OTM put for 20 cents with a 5 cent wide B/A spread, there's little to no price improvement available from the 20 cent put.

Your question about risk is a bit confusing. The more ITM the short put is in your bull vertical put spread, the larger the credit and lower the total risk of the position. However, the deeper ITM it is, the larger the delta and therefore the higher the probability that the option will expire ITM (delta is an approximation of the probability of the option expiring ITM).

Think of it this way. Suppose XYZ is $50 and the Oct $60 call has a delta of 5. That means that it has a 5% chance of being ITM at expiration. Not a good bet, eh? It's cohort, the Oct $60 put will have a delta of 95 or a 95% chance of being ITM at expiration. However, this doesn't address probability of profit (POP) or expected return and the latter gets into more complex math.

For POP, read the simplified POP explanation at tastytrade http://tastytradenetwork.squarespace.com/tt/blog/probability-of-profit

For a simple estimate of the trade probability use the free "Probability Calculator Software" at http://www.optionstrategist.com/calculators/probability .

This may sound confusing but if you want a really lazy way to calculate the probability of your spread, calculate the delta of a hypothetical put (same series) with a strike price of the break even point of your spread. It will provide a ball park result near that of the above calculator.


You need to use limit orders for both legs, a credit for the sale a debit for the purchase. I believe you have it right.

The bigger issue in my opinion, is that the bid/ask spreads will kill you. When I am looking to enter a call spread with strikes $10 apart, I can find the existing bid/ask looks like I’d pay $4 or more, yet a debit spread of $2.50 gets filled. On review, the fills are not symmetrical,sometimes the gain in my favor is all in one leg, other times, both legs are filled in between bid/ask. My point here is that if you are going to trade option spreads, even occasionally, I’d strongly suggest a broker that offers this. I can’t imagine trading spreads using individual stand alone trades.

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