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Multi-leg Option Strategies
Bear Call Spread Options Trade
Bear Call Spread Options Trade

(short call spread)

Ryan Faloona avatar
Written by Ryan Faloona
Updated over a week ago

Disposition: Bearish (time decay)

How it Works

A bear call spread is a type of options strategy used when an options trader expects a decline in the price of the underlying asset. A bear call spread is achieved by purchasing call options at a specific strike price while also selling the same number of calls with the same expiration date, but at a lower strike price.

A bear call spread is also called a short call spread. It is considered a limited-risk and limited-reward strategy.

See example below


Let’s say TSLA is trading at $790 and we expect a decrease in price. We can use a bear call spread by purchasing one call option contract with a strike of $785 for a debit of $2 and by selling one call option contract with a strike price of $775 for a credit of $4. By entering this trade, you will receive a net credit of $200 (4-2). If the price of TSLA closes at or below $775 at expiration, then the total net credit initially received will be kept.



Max Profit and Max Loss

Max Profit = $200 (Credit $4 - debit $2)

Max Loss = $8

See calculation below


Scenario 1: What happens if trade closes the above-purchased Strike?

If it closes above the higher strike price of $785 there will be a loss of the difference between the two strikes minus the amount of the credit received when trade was placed. $785 - $775 = $10 ….. $10 - debit of $2 = a total of $8

Scenario 2: What happens if trade closes between strikes at expiration?

If it closes between the two strike prices, there will be a reduced profit. To avoid complexity, closing the position prior to expiration could be a good option. Speak to your broker for more information.

Risk Management & Strategy

  1. Position size: 3 - 5% of your total account value

  2. *Be ok with not being able to take every trade that does not make sense money-wise in relation to your account size

  3. If entering more than 1 contract, exiting a portion of the position as the trade develops (in this case with time getting closer to exp) is a great way to reduce loss and secure profit.

  4. Have a predetermined set amount you are willing to lose and gain (OCO order is a great way to take emotion out of trading)

Pro tip: knowing where there could be support and resistance will help set realistic profit and loss goals

  1. Purchasing shorter-term call contracts with a Trail Stop, if there is a concern of a short-term bull run, could help offset loss if stopped out (Hedging)

Notice the difference between a Bear Put Spread and a Bear Call Spread. You do not receive an initial credit at the time the trade is placed with a Bear Put Spread while with the Bear Call Spread you do.

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