Bear Call Spread

Bear Call Spread is a strategy that must be devised when the investor is moderately bearish on the market direction and is expecting the underlying to fall in the short-term.

A Bear Call Spread is formed by buying an “Out-of-the-Money Call Option” (higher strike) and selling an “In-the-Money Call Option” (lower strike). Both Call options must have the same underlying security and expiration month.

The investor receives a net credit because the Call bought is of a higher strike price than the Call sold.

The concept is to protect the downside of a Call sold by buying a Call of a higher strike price to insure the Call sold.

Investor view: Moderately bearish on the Stock/ Index.

Risk: Limited.

Reward: Limited to the net premium received.

Breakeven: Strike price of Short Call + premium received.

Latest posts by optionshiksha (see all)