SPY bull put spread: credit, risk, strikes

You are still selling downside — just not all of it. The long $726 put cuts the tail off below that level, which is why this needs $700 of buying power instead of the $73,500 a cash-secured put would tie up.

Above $735 at August 31, 2026, both puts expire worthless and you keep the full $200. Below $726, you lose the maximum $700. Breakeven is $733.

Return on risk is 29% for 30 days — 348% annualized. That headline is the reason people prefer spreads to cash-secured puts, and the reason spreads blow up accounts: the same capital supports several times the notional risk.

Between the strikes the loss scales linearly, so most of the damage happens fast when SPY breaks $735. There is no assignment-and-hold escape hatch: the long put you own expires the same day.

Early assignment on the short leg leaves you long 100 shares plus a long put — a synthetic call, not a disaster, but a position you did not choose and one that requires $73,500 of cash on Monday.

The structural problem with short premium is not the loss rate, it is the loss SIZE. A long run of small wins funded by an occasional large loss looks like skill on a monthly statement and like variance on a five-year one.

Index premium is the cleanest short-vol trade available to a retail account, and also the thinnest: SPY's variance risk premium is real but small, so the edge comes from repeating it hundreds of times, not from any single credit. Cash-secured puts here tie up serious capital for a yield a T-bill nearly matches, which is why most SPY premium sellers use spreads instead.

SPY's Aug 31 strikes are $3 apart near the money (0.40% of spot). That is workable, but it means a one-rung move in a strike is a real change in the trade, not a tweak. 194k contracts of open interest on Aug 31 is deep enough that multi-leg orders fill near mid at retail size. 51 strikes on that expiry — 43% of the board — carry prints that agree with their own implied volatility and hold up across the ladder, and those are the strikes priced here. Four-leg structures fill at mid, at size, all day. There is no execution excuse on SPY.

Skew is ordinary — the 25-delta put implies 4.1% more vol than the 25-delta call, about what an equity surface looks like when nothing unusual is being priced. Neither side of the chain is being singled out, which is the condition under which a symmetric structure like a condor is actually symmetric. The term structure is flat inside 1.5% between the two captured expiries, so there is no calendar edge to harvest and no event visibly priced into one month over the other.

At 13% ATM implied vol, the Aug 31 options are pricing a one-standard-deviation move of $28.39 over 30 days — roughly −3.8% to +3.8%, or $718.64 to $775.42. Everything the bull put spread above collects is rent on that range. If SPY routinely covers 3.8% in 30 days, the credit is fair compensation rather than edge.

The specific way people lose money on SPY: Assuming daily expirations make short premium safer. Zero-DTE gamma on SPY is the fastest way a small account discovers that a 'high probability' trade has a fat left tail.