BEAR CALL SPREAD
Overview
Sell a lower-strike call and buy a higher-strike call in the same expiration. You collect a credit upfront and keep it if the stock stays below the short call strike through expiration. A defined-risk, defined-reward bearish or neutral income strategy.
What it does
You're collecting premium by agreeing to take risk above a certain price level, but your risk is capped by the long call you bought. The stock just needs to stay below your short call strike through expiration. If it does, you keep the entire credit. This is the bearish mirror image of a bull put spread.
Structure
sell 1 call + buy 1 call
Setup
- 1.Choose a stock you expect to stay flat or decline.
- 2.Sell 1 Call at a lower strike (above the current price).
- 3.Buy 1 Call at a higher strike (your hedge).
- 4.Same expiration — 30–45 days is typical.
- 5.Verify the order is a net credit; max profit = credit, max loss = width minus credit.
Max profit
Net Credit Received. E.g., $1.60 × 100 = $160 per spread.
Max loss
(Spread Width − Net Credit) × 100. E.g., ($5 − $1.60) × 100 = $340.
Breakeven
Short Call Strike + Net Credit. E.g., $440 + $1.60 = $441.60.
When to use
When you're mildly bearish or neutral and want to collect premium above the market with limited, defined risk.
When to avoid
Before a strong bullish breakout or when price momentum is decisively upward.
Example trade
Stock: SPY at $430 Sell 1 SPY $440 Call at $2.60 Buy 1 SPY $445 Call at $1.00 Net Credit: $1.60 ($160) Expiration: 35 days Max Profit: $160 (if SPY stays below $440) Max Loss: ($445 - $440 - $1.60) × 100 = $340 Breakeven: $440 + $1.60 = $441.60 If SPY stays at $432: Both calls expire worthless, keep $160 If SPY rallies to $448: Max loss = $340
Common mistakes
- ×Entering a bear call spread when the stock has strong upside momentum — fighting the trend.
- ×Choosing a short strike too close to the current price without sufficient buffer.
- ×Not closing when the stock approaches the short call — hoping for a late reversal rarely pays.
- ×Using too wide a spread for too little credit — poor risk-reward ratio.
- ×Entering after IV has already spiked — the long call costs nearly as much as the short call earned.
FAQ
How does a bear call spread differ from a covered call?
A covered call owns stock; a bear call spread does not. The bear call spread is purely a short premium play, while the covered call generates income against shares you hold.
When is the best time to enter a bear call spread?
After a strong rally into resistance, when IV is elevated and you expect the stock to consolidate or decline.
Can I roll the spread if the stock approaches my short strike?
Yes. You can roll up and out — buy back the current spread and sell a higher-strike spread in a later expiration for a net credit or small debit.