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A bull put spread is an options strategy where you sell a put option at a higher price and buy one at a lower price for the same asset and expiration date. This helps generate income and limits losses, making it good for traders expecting small price increases or stable prices. The most you can earn is the premium received, and the most you can lose is the difference between the strike prices, minus the premium. Working with a financial advisor can help you adjust this strategy to meet different investment goals and risk levels.

","

What Is a Bull Put Spread?

","

A bull put spread is a type of options strategy that traders use when they expect an asset’s price to remain stable or rise modestly. It involves selling a put option with a higher strike price while buying another put option with a lower strike price.

","

As noted earlier, both options are on the same asset and have the same expiration date. The premium received from selling the higher strike put helps offset the cost of purchasing the lower strike put, which in turn reduces the overall capital requirement.

","

Put options allow the holder to sell an asset at a set price before the option expires. But, they are not required to do so. Traders who buy put options usually expect the asset’s price to fall, indicating a bearish outlook. Selling a put option, on the other hand, indicates that the trader is ready to buy the asset at the strike price if necessary.

","

In a bull put spread, the trader profits when the asset’s price remains above the higher strike price at expiration, allowing both options to expire worthless and capturing the net premium received. If the price falls below the lower strike, the loss is limited to the difference between strike prices minus the initial premium collected, making it a defined-risk strategy.

","

How to Use a Bull Put Spread

","

The strategy is most effective when implied volatility is high because this raises put option premiums, letting traders earn more from selling the higher strike put. Choosing the right strike prices is important for using the bull put spread effectively.

","

An in-the-money (ITM) put option has a strike price higher than the current market price of the asset, meaning it already has intrinsic value. An at-the-money (ATM) put option has a strike price equal to or very close to the asset’s current price.

","

Selling an ITM put brings in a higher premium but has a higher risk of having to buy the asset if its price stays below the strike price. Selling an ATM put strikes a balance between earning a good premium and the option expiring without value. Many traders opt to sell an out-of-the-money (OTM) put, setting the strike price below the current price of the asset, which lowers the risk of having to buy the asset while still earning a premium.

","

As the expiration date approaches, traders might close the trade early to secure profits if the value of the spread has dropped significantly. If the price of the asset falls, extending the spread to a later date or changing the strike prices can help reduce potential losses.

","

Example of a Bull Put Spread

","

","

To see how a bull put strategy plays out, let’s assume that a stock is currently trading at $150. A trader expects the stock to stay above $145 over the next month. To set up a bull put spread, the trader would:

","

Sell a $145 put for $4 per contract.
Buy a $140 put for $2 per contract.

","

This results in a net credit of $2 per share, equal to $200 per contract.

","

If the stock remains above $145 at expiration, both options expire worthless, and the trader keeps the $200 profit.
If the stock falls below $140, the trader takes the maximum loss, calculated as the $5 strike difference minus the $2 credit, totaling $3 per share or $300 per contract.
If the stock closes between $140 and $145, the trader experiences a partial loss depending on the put spread’s value at expiration.

","

Overall, the bull put spread allows the trader to profit from neutral-to-bullish price action while maintaining a defined risk.

","

Pros and Cons of the Bull Put Spread Strategy

","

One key advantage of using a bull put spread is that it lets a trader profit even if the stock price does not rise significantly. It only has to stay above the short put’s strike price at expiration.

","

Additionally, because the trade results in a net credit, time decay works in the trader’s favor, meaning the value of the spread naturally declines over time, increasing the likelihood of a profitable exit. The defined risk structure also makes it easier to manage losses when compared with selling naked puts.

","

However, just as it limits potential losses, a bull put spread caps potential profits. These are limited to the value of the net premium received, which may be lower than other bullish strategies like buying calls.

","

Although the risk is capped, there’s a chance of early assignment if the short put falls into the money before expiration, particularly for stocks that pay dividends. If implied volatility falls, it can decrease the spread’s value, which is good for the seller. But, if volatility rises, the trade could move against the trader. Traders can potentially avoid losses by making adjustments, such as extending the expiration date, though this requires careful management.

","

Bottom Line

","

","

A bull put spread allows traders to earn income with managed risk, which can be a suitable strategy for moderately bullish markets. This strategy uses two put options at different strike prices to cap losses while taking advantage of time decay and steady prices. While profit and risk are predefined, things like implied volatility and early assignment can affect results. Carefully choosing strike prices and expiration dates could help match the trade to market conditions.

","

Tips for Investment Planning

","$48","

Photo credit: ©iStock.com/fizkes, ©iStock.com/JulPo, ©iStock.com/PeopleImages

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Year-over-year (YOY) growth is a performance indicator often used by investors to measure financial progress and compare results from one period to another. The measurement, which looks at change across two comparable periods of time, can provide valuable information about trends, risks and opportunities. Investors can then use this information to evaluate the performance and […]

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","

Need help evaluating stocks for your portfolio? Consider working with a financial advisor.

","

What Is YOY Growth?

","

YOY growth is the percentage change in a certain metric—like revenues, earnings or customers—from one year to the next. It helps you evaluate how a stock’s main metrics are growing over time and identify any trends or patterns. For example, if a company’s sales increased by 10% in 2025 when compared with 2024, that would mean 10% YOY growth.

","

YOY is often used to compare growth from a quarter of one year to the same quarter in the previous year. This helps smooth out any effects due to seasonality and gives a more accurate picture of a company’s performance.

","

As an example, the fourth quarter is the most important quarter for retail companies because of the holiday season. As such, comparing a company’s performance in the fourth quarter of 2025 with the fourth quarter of 2024 would give a better idea of a company’s performance than if you were to compare it with the third quarter of 2025.

","

On the other hand, a company could try to show impressive quarterly performance but may fail to show that it’s improving over a longer period of time when calculated year-over-year. Or, a company could claim its overall performance is growing, when in reality individual quarters display different trends.

","

Calculating YOY growth, thus, offers a better understanding of a company’s true business performance because it adjusts for any effects of seasonality.

","

How to Calculate YOY Growth

","

","

To calculate YOY growth, you can use this simple formula:

","

YOY Growth (%) = (Current Year Value – Previous Year Value) / Previous Year Value x 100

","

For example, if a company’s revenue was $1,000,000 in 2024 and $1,200,000 in 2025, the YOY growth would be 20%. The math would look like is:

","

YOY Growth (%) = ($1,200,000 – $1,000,000) / $1,000,000 x 100 = 20%

","

The YOY growth can be positive or negative, depending on whether the current year value is higher or lower than the previous year value. A positive YOY growth shows an increase, while a negative YOY growth shows a decrease.

","

You can also calculate YOY growth for each quarter by comparing the same quarter in different years. For example, if a company’s revenue was $250,000 in the first quarter of 2024 and $300,000 in the first quarter of 2025, the YOY growth for Q1 would be 20%. To make this calculation, you would simply substitute quarterly numbers for the annual numbers used in the formula above.

","

The Importance of YOY Growth for Investors

","

YOY growth is important for investors to consider because it provides insight into a company’s financial performance, trends and growth trajectory over time.

","

Here are three key benefits of using year-over-year metrics when making investment decisions:

","$5b","

Another advantage of YOY growth calculations is their simplicity. The calculation is easy to understand and compute, even for novice investors or small business owners who are creating balance sheets for the first time. By focusing only on the two most recent periods, YOY growth also filters out any day-to-day fluctuations in financial performance.

","

Bottom Line

","

","

YOY growth could help investors compare a company’s performance against competitors and over time. It can also show a company’s progress and momentum, but should not be used alone. Combining it with other financial metrics will give you a clearer picture of a company’s value and future potential.

","

Investment Planning Tips

","$5c","

Photo credit: ©iStock.com/Drs Producoes, ©iStock.com/FangXiaNuo, ©iStock.com/filadendron

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Downside risk refers to the potential for an investment to decrease in value. Unlike general risk, which considers both upward and downward price movements, downside risk focuses solely on the negative. This more targeted view of potential financial pitfalls can be helpful to investors who are particularly concerned about capital preservation. Common approaches to quantifying […]

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His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":822,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDQ=","databaseId":144,"userId":144,"avatar":{"url":"https://secure.gravatar.com/avatar/f9d67283a5124e59bce3aa419d39f0450d8c3c316c9596a42a37aa8df9e54482?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Brandon is a Certified Financial Planner™ (CFP®), Retirement Income Certified Professional (RICP) and Enrolled Agent (EA) with more than 10 years of experience as a financial professional. 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","

A financial advisor can help you identify investment opportunities and manage risk for your portfolio.

","

What Is Downside Risk?

","

Downside risk is an investing concept that refers to the potential loss in value of an investment. It measures the likelihood of an asset declining in price and the extent of that potential decline. Unlike general risk, which considers both upward and downward price movements, downside risk focuses solely on the possibility of loss. This makes it appealing to investors who are particularly concerned about minimizing losses.

","

While the desired end result of any investment strategy is an increase in value, understanding and managing downside risk is essential for long-term financial success as an investor. By focusing on the potential for loss, investors can develop strategies that not only aim for growth but also safeguard against significant setbacks. This approach is particularly important during volatile market conditions.

","

For any investor, awareness of downside risk enables them to make more resilient investment choices. Working with a financial advisor can provide valuable insights into downside risk management, helping investors construct a diversified portfolio that balances potential returns with acceptable levels of risk.

","

How to Measure Downside Risk

","

","

Investors employ some specific financial metrics to help them gain insight into downside risk, allowing them to strategize effectively to limit and avoid losses. Two popular methods for evaluating downside risk are the Sortino Ratio and Value at Risk (VaR).

","

Sortino Ratio

","

The Sortino Ratio helps investors measure the additional return they are likely to receive in exchange for taking on downside risk. To calculate this ratio, determine the difference between an investment’s average return rate and the risk-free rate. Then divide this figure by the standard deviation of negative returns.

","

Generally speaking, a higher Sortino Ratio is more desirable for a risk-sensitive investor. A higher number indicates an investment is likely to deliver more return for each additional unit of downside risk that is taken on.

","

Value at Risk (VaR)

","

Value at risk (VaR) is another widely used method for assessing downside risk. VaR estimates the maximum loss that an investor might face with a given level of confidence, typically expressed as a percentage. The result is a statistical measure of the potential loss in value of an investment portfolio over a defined period.

","

For example, a one-day VaR of 5% at a 95% confidence level suggests that there is a 5% chance the portfolio will lose more than the calculated amount in a single day. This method provides investors with a quantifiable measure of risk, helping them understand the potential impact of adverse market movements on their investments.

","

Risk vs. Downside Risk in Investing

","

Risk refers to the potential for an investment to deviate from its expected outcome, which can result in either gains or losses. Investors must consider various types of risk, including market risk, credit risk, and interest rate risk, each of which can impact the performance of their investments. By evaluating these risks, investors can better align their portfolios with their financial goals and risk tolerance.

","

Upside risk is the potential for an investment to perform better than expected. Downside risk specifically focuses on the potential for loss in an investment. General risk, a broader concept, encompasses both positive and negative outcomes.

","

Downside risk is of particular interest for investors who are risk-averse, which includes many investors nearing retirement age. It helps them understand the worst-case scenarios and prepare accordingly. If downside risk appears excessive, investors can implement strategies such as diversification or hedging to mitigate potential losses and protect their portfolios.

","

Balancing risk and downside risk is essential for successful investing. While taking on some level of risk is necessary to achieve returns, understanding and managing downside risk helps investors avoid exposing themselves to excessive losses.

","

Financial advisors often play a key role in helping investors work through these complexities by providing personalized advice and strategies. If you strike the right balance, you could pursue growth opportunities while safeguarding your investments against significant downturns, ultimately achieving a more secure financial future.

","

Bottom Line

","

","

Understanding downside risk is important for investors who are aiming to protect their portfolios from potential losses. This concept refers to the potential loss in value of an investment. Calculating downside risk involves assessing the likelihood and extent of negative returns, which can be achieved through various methods such as value at risk (VaR) and the Sortino Ratio. These tools help investors quantify the risk of loss and make informed decisions about their investments.

","

Tips for Investors

","$74","

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Purchasing power refers to the amount of goods and services a person or entity can buy with a given amount of money. It fluctuates over time due to inflation, deflation and changes in income, directly affecting consumers, businesses and economies. When inflation rises, purchasing power declines, meaning the same amount of money buys fewer goods. Conversely, if wages increase faster than inflation, purchasing power improves. It is commonly measured using price indices like the Consumer Price Index (CPI), which tracks shifts in the cost of living.

","

If preserving your purchasing power is a financial priority, speak with a financial advisor about how to invest your money in growth-oriented assets. Match with an advisor today.

","

What Is Purchasing Power?

","

Purchasing power represents the real value of money in terms of the quantity of goods and services it can buy. Purchasing power changes over time under the influence of factors such as inflation, wage growth, interest rates and currency fluctuations. For example, if prices rise over time, each dollar is less effective in securing goods and services. When this happens, purchasing power has declined.

","

Beyond consumer prices, purchasing power can also be evaluated in terms of income. Real wages, which are nominal wages after being adjusted for inflation, indicate whether earnings are keeping pace with rising costs. By analyzing these metrics, individuals, businesses and policymakers can gauge shifts in economic conditions and adjust financial strategies accordingly.

","

Measuring Purchasing Power With the CPI

","$87","

Measuring purchasing power typically involves price indices, with the CPI being one of the most widely used. The Consumer Price Index (CPI) measures fluctuations in the cost of a standardized set of goods and services purchased by consumers, typically over the course of a year. Changes in this index reflect the impact of inflation or deflation on everyday expenses, revealing changes in the cost of living.

","

A rising CPI indicates that prices are increasing. When this happens, purchasing power declines. A stable or declining CPI suggests that purchasing power is rising, because consumers can buy more with the same amount of money. Central banks, such as the Federal Reserve, monitor CPI to guide monetary policy decisions, including interest rate adjustments.

","

A standard formula for measuring purchasing power compares the value of money across different time periods:

","

Purchasing Power = (Cost of Basket in Current Year / Cost of Basket in Base Year) x 100

","

This equation helps determine how inflation impacts the real value of money. If the CPI increases, purchasing power declines, as more currency is needed to buy the same items.

","

For example, if a basket of goods cost $1,000 in the base year and $1,100 today, the CPI would be 110, indicating a 10% increase in prices.

","

(1,100/1,000) × 100 = 110

","

What Is Purchasing Power Parity?

","

Purchasing power measures the impact of inflation on buyers in a single country using that country’s currency. Another measure, Purchasing Power Parity (PPP), compares the relative value of currencies by determining what the same set of goods would cost in different countries.

","

PPP is based on the idea that, in the absence of trade barriers, identical goods should have the same price globally, when adjusted for exchange rates. PPP is used by international organizations like the World Bank to understand differences in economic productivity and living standards across nations.

","

Why Purchasing Power Matters to Investors

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Investors closely monitor purchasing power because it directly influences the real value of returns, asset prices and overall economic stability. Inflation erodes the future value of money, meaning that if an investment’s return does not outpace inflation, the investor effectively loses purchasing power.

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For instance, if an investment yields 5% annually but inflation rises to 6%, the real return is negative, reducing the investor’s ability to buy goods and services in the future.

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Fixed-income investments, such as bonds and annuities, are particularly vulnerable to purchasing power erosion. Since these instruments provide fixed payments, rising inflation diminishes the real value of those future cash flows. Investors counter this risk by favoring assets with inflation-hedging properties, such as Treasury Inflation-Protected Securities (TIPS), commodities and real estate, which tend to appreciate when prices rise.

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Equities, while generally providing higher long-term returns, can fluctuate due to changes in consumer spending. When consumers cut back on purchases, corporate revenues and stock valuations may decline.

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Bottom Line

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Shifts in purchasing power influence everyday spending, long-term financial planning and investment decisions. Inflation, wage trends and currency values all shape how much can be bought with a given amount of money, making purchasing power a key factor in economic stability. Metrics like CPI and PPP help assess these changes, offering insights into both domestic and international markets. Investors, businesses and policymakers use these measures to adjust strategies and manage financial risk.

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Investing Tips

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