📈 Trade Breakdown: AAPL Bull Put Spread – July 7, 2025
Today’s trade features a bull put spread on Apple Inc. (AAPL), a defined-risk, income-generating options strategy. Let’s break down the trade, explore its purpose, and analyze what to expect depending on market conditions.
🧾 The Trade Setup
- Bought 1 contract of the AAPL 11 JUL 25 195 PUT at $0.08
- Sold 1 contract of the AAPL 11 JUL 25 200 PUT at $0.17
This creates a $5-wide bull put spread with 4 days to expiration.
💰 Risk/Reward Profile
- Net Credit Received: $0.09 per share (or $9 total) minus commissions.
- Max Risk: $5.00 – $0.09 = $4.91 per share (or $491 total)*
- Max Profit: $9, if AAPL stays above $200 by July 11
📊 Payoff Chart
Here’s a visual representation of the profit/loss at expiration:
- Blue Line: Net P&L at expiration
- Red Line: Short put strike ($200)
- Green Line: Long put strike ($195)
- Flat Zone Above $200: Max profit zone
- Steep Drop Below $195: Max loss zone
🧠 Strategy Purpose & Ideal Conditions
A bull put spread is a credit spread that profits when the underlying stock stays above the short strike price. It’s ideal for:
- Neutral to moderately bullish outlooks
- Short-term trades with defined risk
- Generating income in sideways or slightly rising markets
This strategy is often used when:
- Implied volatility is elevated (higher premiums)
- The trader expects support at or above the short strike
- There’s limited upside conviction, but strong downside support
📉 Market Scenarios & Expectations
| Market Outcome | AAPL Price at Expiration | Result |
|---|---|---|
| Bullish | Above $200 | Max profit ($9) |
| Neutral | Between $195 and $200 | Partial loss or break-even |
| Bearish | Below $195 | Max loss ($491) |
Theta (time decay) works in your favor here. As long as AAPL stays above $200, the value of both puts decays, and the spread can be closed early for a profit.
💰Risk Analysis
In a bull put spread, your maximum risk is the difference between the strike prices minus the credit received. This happens if the stock closes below the lower strike at expiration. In this trade, the spread is $5 wide and the trader collected $0.09 in premium. That means the worst-case scenario is a $4.91 loss per share, or $491 total, if AAPL closes below $195. This is the defined risk part of the strategy—no matter how far AAPL falls, the loss is capped.
✅ Max Risk Calculation:
A bull put spread involves:
- Selling a higher strike put (here, the $200 PUT)
- Buying a lower strike put (here, the $195 PUT)
- Receiving a net credit (here, $0.09 or $9 per contract)
The maximum risk occurs if the stock price falls below the lower strike ($195) at expiration. In that case:
- The short $200 PUT is $5 in the money
- The long $195 PUT is also $5 in the money, but it offsets the loss
- The spread loses $5, but you keep the $0.09 credit
The formula is:
Max Risk=Strike Width−Net Credit=5.00−0.09=4.91
📊 Risk/Reward Analysis: Is It Worth It?
While the bull put spread offers a defined-risk, defined-reward setup, the numbers reveal a critical insight:
🔢 Trade Metrics
- Max Profit: $9 (excluding commissions)
- Max Loss: $491
- Risk/Reward Ratio: 54.56 to 1
This means you’re risking $54.56 to make $1.
⚖️ Breakeven Win Rate
To break even over time, you must win at least 98.2% of your trades. That’s an extremely high bar, even for experienced traders.
📈 Expected Value (EV) Analysis
| Win Rate | Expected Value per Trade |
|---|---|
| 80% | −$91.00 |
| 85% | −$66.00 |
| 90% | −$41.00 |
| 95% | −$16.00 |
Even with a 95% win rate, the strategy still loses money over time due to the asymmetry of risk and reward.
🧠 What This Means
This trade setup is not sustainable long-term unless:
- You can consistently achieve near-perfect win rates
- You have strong technical or fundamental conviction that AAPL will stay above $200
- You use this strategy selectively, not systematically
It’s best suited for:
- Short-term, high-confidence trades
- Supplementing other strategies, not as a standalone income engine
📌 Final Thoughts
This trade is a defined-risk, short-term income strategy with a clear thesis: AAPL will stay above $200 through Friday. With only 4 days to go, the trader is betting on short-term stability or a slight rebound.
But what if AAPL closes below $200 or starts trending downward before expiration?
🛠️ Management Options if AAPL Drops Below $200:
- Close the Spread Early to Limit Losses
- If AAPL breaks below $200 and momentum looks bearish, consider closing the spread early.
- This prevents the position from reaching max loss and locks in a smaller, more manageable loss.
- Roll the Spread Forward
- Roll the position to a later expiration date (e.g., next week or month) and possibly adjust the strikes.
- This gives the trade more time to work and can reduce the break-even point, especially if implied volatility is favorable.
- Convert to a Wider Spread
- If you still believe in the bullish thesis but want to reduce risk, you could widen the spread (e.g., roll the long put down to $190).
- This increases the max risk but may improve the probability of profit.
- Let It Expire if Near the Breakeven Zone
- If AAPL is hovering just below $200 near expiration, you might choose to let the spread expire, especially if the loss is minimal or time decay is working in your favor.
- Be cautious: if AAPL drops sharply, losses can accelerate quickly.
- Hedge with Stock or Other Options
- If you hold AAPL shares, the spread can act as a partial hedge.
- Alternatively, buying a short-term call or put could help offset directional risk.