When examining option plays in this market, traders may be drawn to more neutral plays than directional plays. When neutral strategies are discussed, credit spreads must be part of that discussion, because most will profit if the underlying stock doesn’t move much or moves in the intended direction of the strategy. The market has been mostly bearish over the last couple of weeks, but some stocks have held up remarkably well, all things considered.

One stock that comes to mind is Apple (NASDAQ:AAPL). Without a doubt the market has been extremely choppy. AAPL has been trading in a range from about $360-$390 over the last month or so. It’s now in a modest uptrend, because the stock has been setting higher highs and higher lows, which is certainly a bullish sigh — although it is hard to be a bull in this market. When the market has sold off, AAPL has always found a way to get above the $360 level.

With Apple trading at about $377, a strategy using a bull put spread at $360 looks pretty good. This involves selling a put option while buying a lower-strike put option with the same expiration month. The short put is more expensive than the long put. Adding a long put option to the short put position creates a credit spread and protects the position from further losses if the underlying falls below the two strikes. This credit spread has a smaller potential profit than a naked put option, but also limits downside risk.

The Trade: sell October 350/360 put credit spread (selling the October 360 put and buying the October 350 put) for $3 or better.

The maximum potential profit for this trade is $3 if AAPL is trading above $360 at October expiration. The maximum loss is $7 ($10 – $3) if AAPL is trading below $350 at October expiration. Break-even is $357 at expiration.

It’s important not to be greedy. Buying back the spread for half of the maximum profit ($1.50) of the max profit would be great.