Bear Call Spread
Selling a lower-strike call and buying a higher-strike call to receive credit while defining upside risk.
What is a Bear Call Spread?
Selling a lower-strike call and buying a higher-strike call to receive credit while defining upside risk.
Construction
Sell a lower-strike call and buy a higher-strike call with the same expiration.
When it may be studied
To study a bearish or neutral credit structure when expecting the underlying to remain below the short strike.
Expiration profile
Maximum risk: Strike width minus credit
Maximum reward: Credit received
Break-even: Short call strike plus credit
Worked example
Sell a 100 call and buy a 105 call for a $1.25 credit. Maximum simplified profit is $125; maximum loss is $375; break-even is $101.25.
Key risks and limitations
Early call assignment can occur, especially around dividends. A fast upside move can push the spread toward maximum loss.
Entry and exit checklist
- Confirm contract multiplier, expiration, exercise style, settlement, and liquidity.
- Calculate the maximum loss under the intended structure.
- Review earnings, dividends, corporate actions, and other event risks.
- Define an exit, adjustment, or expiration plan before entry.
- Understand what happens if one leg is assigned or exercised early.