A put credit spread means selling a put option at one strike and buying a put option at a lower strike, same expiration, collecting a net credit up front because the put you sell is worth more than the put you buy. The long put underneath is what caps the risk; that’s the “defined-risk” part.

How it makes money

The position profits if the underlying stays above the short put’s strike through expiration. The spread doesn’t need the stock to go up, just to not fall through the short strike. As time passes and that outcome looks more likely, the spread’s value decays toward zero, which is a win for whoever sold it: the position can be closed early by buying it back for less than the credit originally collected, locking in a partial profit, or held to expiration and allowed to expire worthless for the full credit.

Max profit, max loss, and breakeven

  • Max profit = the credit received, realized if the underlying finishes at or above the short strike at expiration.
  • Max loss = (width between strikes − credit received) × 100 × number of contracts. This is the worst case, if the underlying finishes at or below the long put’s strike.
  • Breakeven = short strike − credit received.

Example: sell a $95 put, buy a $90 put, collect a $1.50 credit. Max profit is $150. Max loss is ($5 width − $1.50) × 100 = $350. Breakeven is $93.50. Those are illustrative round numbers to show the formula; a real trade from this account’s own journal is below.

How this is different from a naked put

A naked put (selling a put with no long put underneath it) has no defined floor on the loss; it extends all the way down to the underlying going to zero, and the buying power reserved reflects that much larger potential loss. The long put in a credit spread caps that downside at the width between strikes, which is why a credit spread ties up dramatically less buying power than a naked put for a similarly-sized directional bet. That buying-power difference is a big part of why defined-risk spreads, not naked positions, are the strategy this journal’s account is built around.

A real one from this account, including the loss

This account has actual put credit spreads on the record, and one of them lost money fast: an SPX 7510/7480 put credit spread on July 15, 2026, sold for a 1.35 credit and bought back ten minutes later for a 2.80 debit, a realized loss of $149.88 after fees. That’s the mechanic above playing out in the other direction: the index moved against the short strike almost immediately, and rather than waiting to find out whether the position would grind toward its full max loss (the width of that spread meant roughly $2,865 at risk), it was closed early for about 5% of the worst case. Every closed trade on this account gets published with the same detail whether it’s a win or a loss, and that one is a loss. The mechanics above explain how a credit spread makes money, and that trade is what it looks like when one doesn’t.

Frequently asked questions

What is a put credit spread?

A put credit spread is a defined-risk options strategy: sell a put at one strike and buy a put at a lower strike for protection, collecting a net credit up front. It profits if the underlying stays above the short strike through expiration, or if it can be closed early for a partial profit.

What is the max loss on a put credit spread?

The width between the two strikes, minus the credit received, times the number of contracts times 100. That's the worst case if the underlying finishes below the long put's strike at expiration, but a position can also be closed early for a smaller, realized loss before it ever reaches that worst case.

How is a put credit spread different from a naked put?

A naked (cash-secured or margin) put has no long put underneath it: the max loss extends all the way to the underlying going to zero, and buying power reflects that. A put credit spread's long put caps the max loss at the width between strikes minus the credit, which is why it ties up far less buying power for a similarly-sized bet.