Bearish options strategy
Bear call spread
Sell a call and buy a higher call. You keep the credit if the stock stays below the short strike.
BearishHigh IV (selling rich premium)Defined riskLevel 4 · Selling premium
Bear call spread payoff
An example on a $100 stock with 30% implied volatility. The dashed line is the profit or loss at expiry; the solid line is what the position is worth today.
The trade
Sell 1 $107 call · 45 days · $1.85
Buy 1 $113 call · 45 days · $0.75
Net credit $110
Max profit$110
Max loss−$490
Break-even$108.10
Chance of profit77%
How it works
- Most you can make: the credit.
- Most you can lose: width minus credit.
When to use it
- You are neutral to bearish and implied volatility is high.
Managing the trade
- Same rules as the bull put spread: about 0.30 delta short, close at 50%, review at 21 days.
Risks
- A rally through both strikes means the max loss.