Options Strategy Guide
Bear Call Spread
Collect premium when you expect a stock to stay flat or fall.
Intermediate
Bearish to Neutral
Defined risk, defined reward — credit received upfront
The Simple Version
Plain English — no jargon
You think a stock won't go above $110 in the next month. Someone pays you $2 today for that bet. If the stock stays below $110, you keep the $2. If it goes above, you lose money — but your loss is capped because you also bought a $115 call as insurance. You got paid to be right.
How It Works — Step by Step
- 1 Sell an OTM call at a strike you believe the stock won't reach
- 2 Buy a further OTM call above it — caps your risk
- 3 Receive net credit upfront — this is your maximum profit
- 4 Maximum loss = spread width minus credit received
- 5 Profit if stock stays below the short call strike at expiration
Real Example
SPY
Illustrative example — not a recommendation
Stock Price
$550.0
Strike Price
$560.0
Premium Collected
$2.44/share
Days to Expiration
30d
Max Profit
$244
Breakeven
$562.44
Annualized Return
34.8%
When to Use It — and When Not To
✓ Use when
- You are bearish or neutral — you expect the stock to stay below your short strike
- IV is high — selling expensive premium
- You want to define your maximum risk upfront
✗ Avoid when
- You are bullish on the stock
- Stock is in a strong uptrend
- IV is low — not enough premium to justify the trade
Greeks & Mechanics (for the experienced trader)
Delta
Negative — profits if stock falls or stays flat.
Theta
Positive — time decay works in your favor as the short call loses value.
Vega
Negative — rising IV hurts your short call.
Gamma
Negative — large upward moves hurt the position.
Key Risks
- Losses are capped but can be 2-3× the credit received
- A strong breakout above the short strike causes losses
- Must be monitored as expiration approaches if stock is near the short strike
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