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OPTIONS STRATEGIES·BEARISH·2 LEGS

Bear call spread

Sell a lower-strike call, buy a higher-strike call. You collect a credit. Profits if stock stays below the lower strike; max loss is capped by the long call above.

INPUTS
Underlying price
$
Centers the payoff chart and computes P&L at this price.
LEGS
Short lower call
Type
Side
Strike
$
Qty
Premium
$
Long upper call
Type
Side
Strike
$
Qty
Premium
$
RESULT
BE $101.20spot $100.00
$60.002 strikes$140.00
P&L at current spot (expiry)
+$120
Net credit+$120
Max profit+$120
Max loss−$380
Breakeven$101.20
Risk / reward0.32 : 1
RISK PROFILE
Max profit
Net credit received
Max loss
Strike width × 100 − net credit
Breakeven
Lower strike + (credit ÷ 100)
HOW IT WORKS

How a bear call spread works

A bear call spread sells a call and buys a further out-of-the-money call in the same expiry, taking in a net credit. It profits when the stock stays below the short strike. The long call is the reason to prefer it over a naked short call: it converts an unlimited tail into a fixed, known maximum loss.

This is a credit spread, so time is on your side. Every day that passes with the stock below your short strike moves the position toward its maximum profit, which is simply the credit you collected. The trade does not need the stock to fall — flat or mildly higher both work, as long as it finishes below the short strike.

Maximum loss is the width between the strikes minus the credit. That number is fixed at entry and is the most the position can cost you no matter how far the stock runs, which is what makes it sizeable in a way a naked call never is.

WORKED EXAMPLE

A worked example

XYZ trades at $100 and you think it stalls below $105. You sell the $105 call for $2.50 per share and buy the $110 call for $1.00, both expiring in 30 days.

Net credit
$2.50 − $1.00 = $1.50 × 100 = $150 (max profit)
Max loss
($5 width − $1.50) × 100 = $350
Breakeven
$105 short strike + $1.50 = $106.50
At expiry, XYZ ≤ $105
Both expire worthless, keep $150
At expiry, XYZ ≥ $110
Fully breached, −$350 — and no worse above that

Risking $350 to make $150 looks unappealing until you note the stock has to rise 6.5% for you to lose anything at all. Credit spreads trade a poor ratio for a high probability, which only works if the sizing respects the ratio.

FIT

When a bear call spread fits — and when it doesn't

Consider it when
  • You are neutral to bearish and can name a level you believe holds as resistance.
  • Implied volatility is elevated, so the credit is worth the risk you are accepting.
  • You want the naked short call's income profile without its tail.
Think twice when
  • The stock is in a clean uptrend. Selling calls into strength is selling into the thing that hurts you.
  • The credit is a small fraction of the width — you are accepting most of the risk for little of the reward.
  • A catalyst inside the expiry could gap the stock straight through both strikes.
FAQ

Common questions

What is the maximum loss on a bear call spread?

(Strike width − net credit) × 100. A $5-wide spread opened for $1.50 risks $350 per contract, and that is the worst case regardless of how high the stock goes.

Where is the breakeven?

Short strike + net credit. Selling the $105 call and collecting $1.50 net puts breakeven at $106.50 at expiry.

Is a bear call spread better than buying a put?

They express different things. The spread profits from time passing and needs only that the stock stays below a level. A long put needs an actual decline but has far more upside if one arrives.

What happens if the short call is assigned early?

You are short 100 shares, with the long call still capping your risk. Assignment before expiry is most common just before an ex-dividend date. Closing the whole spread is usually cleaner than exercising the long leg.

RELATED STRATEGIES
Bull put spread
Bullish · Credit spread, defined risk.
Bull call spread
Bullish · Debit spread, defined risk and reward.
Iron condor
Neutral · Defined-risk credit, profits when stock stays in range.
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