Bear Call Spread: How It Works, With Example
A bear call spread is a credit spread built with calls: you sell a call above the current price and buy another call with a higher strike on the same expiration. You keep the net credit if the stock stays below the short call strike at expiration, and the long call caps your loss if the stock rallies.
How it works
- Pick a stock that has run up and looks likely to stall or pull back, with an expiration about 30 to 45 days out.
- Sell one call above the current price (the short strike) to collect premium.
- Buy one call with a higher strike on the same expiration (the long strike) to cap your risk.
- Keep the net credit if the stock stays below the short strike, or close early to lock in part of it.
When to use it
Use it when you are neutral to moderately bearish - for example when a stock is stalling near resistance after a strong run. The stock doesn't need to fall; it only needs to stay below the short strike.
Profit, loss and breakeven
Max profit
The net credit received.
Max loss
Strike width minus the net credit, times 100 per contract.
Breakeven at expiration
Short call strike plus the net credit.
Example trade
XYZ trades at $100. You sell the $105 call for $2.20 and buy the $110 call for $0.70, a net credit of $1.50 ($150 per contract). Max profit is $150 if XYZ stays below $105. Max loss is $350 if it rises above $110. Breakeven is $106.50.
Bear Call Spread on the Strategy Price Timeline
Example on a $100 stock with 35 days to expiration. The shaded bands show where the stock needs to be at expiration for the trade to profit, partially lose or reach the max loss - the same chart every EasyTrade signal shows.
Swipe to see full chart →Profit zone
Transition zone
Loss zone
Risks to know
- A strong rally above the long strike produces the maximum loss.
- Short calls can be assigned early, especially right before an ex-dividend date.
- Upside surprises such as earnings beats or buyout news can gap the stock through both strikes.
How EasyTrade manages it
EasyTrade closes bear call spread signals at 60% of max profit and exits several days before expiration to avoid assignment risk. On the Diamond plan, open spreads sent to tastytrade are closed automatically at 5 days to expiration.
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