What does a trader do in a bull spread with puts?

In a bull spread with puts, the strategy involves buying a put option with a lower strike price while simultaneously selling a put option with a higher strike price on the same underlying asset. This approach allows the trader to capitalize on a moderate increase in the price of the underlying asset.

By buying the lower strike put, the trader secures the right to sell the underlying asset at that strike level, providing some downside protection. Selling the higher strike put, on the other hand, generates premium income, which offsets the cost of purchasing the lower strike put. The maximum profit occurs if the underlying asset's price is above the higher strike price at expiration. The maximum loss, on the other hand, is limited to the net premium paid to establish the position, as the two options expire worthless when the price of the underlying exceeds the higher strike price.

This strategy is particularly appealing when the trader believes there will be moderate bullish movement in the underlying asset but wants to limit potential losses.