Bear Call Spread
A bear call spread is a defined-risk bearish to neutral options strategy built by selling a call at a lower strike and buying another call at a higher strike with the same expiration. It is usually entered for a net credit and is designed for traders who expect the underlying to stay below the short strike or rise only modestly.
A bear call spread is constructed by selling a call option at one strike and simultaneously buying another call option at a higher strike, both on the same underlying and with the same expiration date.
Because the premium received for the short call is larger than the premium paid for the long call, the position is generally established for a net credit. The trade is bearish to neutral, and the long call caps the risk that would otherwise exist in a naked short call.
The long call acts as insurance against a large upside move. That protection reduces risk compared with a naked call, but it also caps the profit at the initial credit collected.
Traders often choose a bear call spread when they want to collect premium with defined risk and they expect the underlying to remain below a chosen resistance area or drift lower over time.
Maximum profit is limited to the credit received and occurs if the underlying is at or below the short call strike at expiration. In that outcome, both options expire worthless and the trader keeps the full premium collected.
Maximum loss is limited to the difference between the strikes minus the net credit received, and it occurs if the underlying is at or above the long call strike at expiration. The breakeven is the short call strike plus the credit collected.
Example: Stock at 100
Suppose you sell the 100 call for 3.30 and buy the 105 call for 1.50. Your total net credit is 1.80.
Maximum profit: 1.80, or $180 per 1-lot before fees.
Breakeven: 100.00 + 1.80 = 101.80
Maximum loss: (105.00 – 100.00) – 1.80 = 3.20, or $320 per 1-lot before fees.
If the stock expires below 100, both calls expire worthless and the full credit is retained. Between 100 and 105, the trade gives back some or all of the credit. Above 105, losses are capped because the long call offsets additional upside.
The bear call spread is fundamentally a premium-selling strategy. You are selling upside room above the short strike in exchange for an upfront credit, while using the long call to define the worst-case loss.
Delta: The spread generally benefits if the stock falls or stays below the short strike.
Theta: Time decay often helps because the position is entered for a credit and the short option loses extrinsic value over time.
Vega: The position is usually short vega, so a drop in implied volatility often helps while a volatility expansion can hurt.
Gamma: The trade is short gamma, which means risk can increase more quickly as the stock rallies toward the short call strike.
Before expiration, a bear call spread’s value depends on price, time left, and implied volatility. It can often be closed profitably before expiration if time passes and the stock remains below resistance.
In practice, the trade tends to behave best when price drifts sideways or lower and volatility is stable to lower after entry.
When it fits
- You are neutral to moderately bearish on the stock.
- You want defined risk rather than the open-ended risk of a naked short call.
- You want a credit strategy that benefits from time decay.
How the trade wins
- The stock stays below the short call strike.
- Time passes and extrinsic value decays.
- Implied volatility falls or remains contained after entry.
How the trade loses
- The stock rallies toward or through the call spread.
- Implied volatility expands.
- The spread is sold too close to the money for the amount of credit received.