Strategies · Library · Options
§2.7Carry
Bull put spread
Sell a put at a higher strike and buy a lower-strike put, same expiry, for a net credit. You keep the credit if the stock stays above the upper strike.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Mildly bullish or neutral: expects the stock to stay above a support level.
- Entry and exit
- Sell an out-of-the-money put; buy a further out-of-the-money put as protection, same expiry. Close at expiry or buy back when most of the credit is earned or the short strike is threatened.
- Sizing
- 1:1 (one short higher-strike put, one long lower-strike put)
How it fails
- Maximum loss is the strike gap minus the credit, if the stock ends below the lower strike
- Gain is capped at the credit received
- Breakeven is the short strike less the credit
- Time decay favours the seller; early assignment risk
Data it needs
- options chain with strikes and premiums
- implied volatility by strike and expiry
- underlying daily price
ARCANE has the underlying daily close but no options chains, strikes or implied volatilities
How ARCANE uses it
Matches a Call that a price holds above a floor through a date, such as "the S&P 500 does not close below a level this month". Paper only.
A sold put spread cannot be expressed long-only; staying in or out of the asset is a loose proxy.
Filed under the carry card
Own what pays more than it costs to finance (the return if prices stand still) and sell what pays less, across currencies, bonds, commodities and stock indexes.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 75% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.7, p. 21 of the SSRN version. Described in our words. Carry is ARCANE’s filing, not the book’s.