Timing Purchase Of The Long Put for Credit Put Spreads – Investor Questions

On the members forums I was asked about the timing of buying the long put in credit put spreads. Let’s review the questions asked and then look at some answers.

Investor Questions:

These questions were posted Oct 29 2020.

Hi Teddi,

(With credit put spreads) You often sell the short put first, and then wait to buy the long put of the put credit spread at a reasonable price.

However, that leaves the short put unprotected. There is often no way to predict the direction that the market will take.

The past two days are a perfect example. If one had simply sold a naked put on oct 26th and waited for better prices to buy the protective long put, they would have been faced with a severe price decline. It would now cost them MUCH more to buy the long put. But, more importantly, they would have faced a large price decline of their short put, without having the protection of the long put.

You often advocate trading in a prudent fashion. Not buying the long put at the same time as the short put is sold, seems contradictory to a prudent trading approach.

Could you please explain.

Thank you.

Some Answers:

There are a number of articles on my website touching on setting up credit put spreads but the questions from this investor, allow for some additional answers.

Like anything in investing, setting up credit put spreads is a personal decision and does not have any stringent guidelines. However there are some methods that investors can apply, based on understanding the type of investor they are.

When it comes to selling put options you have to decide what is your goal. In general there are two types of investors when it comes to selling put options.

The rest of this article is for members.