Bear Call Spread
Selling an OTM call and buying a further OTM call to generate bearish credit with defined risk.
Profit / Loss Diagram
Bear Call Spread at expiration
What is this strategy?
The Bear Call Spread is a bearish credit strategy that sells an OTM call while buying protection with a call at a higher, further out-of-the-money strike. Also known as a Short Call Spread, it generates immediate income through the net premium received. It is the mirror image of the Bull Put Spread, suited to bearish or neutral traders seeking income with defined risk.
The key structure is selling the "near" call (lower strike) and buying the "far" call (higher strike) as protection. If price rises sharply, your maximum loss is limited to the strike width minus the credit received. Your maximum gain is the net credit, realised in full if price closes below the short strike at expiration.
The Bear Call Spread suits bearish or neutral traders expecting price to remain relatively stable or fall. It benefits from the passage of time (positive theta) and from falling volatility (negative vega). It is popular in sideways or declining markets when you want income without unlimited risk. Breakeven is calculated by adding the net credit to the short strike.
Construction
| Action | Instrument | Strike | Expiration | Example |
|---|---|---|---|---|
| SELL | 1 Call | ATM or slightly OTM | 30-60 DTE | -1 AAPL Jun 180 Call @ $5.00 |
| BUY | 1 Call | OTM (5-10% above) | Same Expiration | +1 AAPL Jun 190 Call @ $1.50 |
Example
Scenario: AAPL trades at $173. You are bearish and believe it will not rise above $180 within two months.
- Short Call Sold -1 AAPL Jun 180 Call @ $5.00
- Long Call Purchased +1 AAPL Jun 190 Call @ $1.50
- Net Credit +$350 (5.00 − 1.50 = 3.50 × 100)
- Maximum Gain $350 (net credit received)
- Maximum Loss $650 (190−180 strike width − $350 credit)
- Breakeven $183.50 (180 short strike + 3.50 net credit)
- Profit if AAPL = $170 $350 maximum (any close below the short strike)
The Greeks
The short call carries negative delta, the long call positive. Net is negative but limited — typically −0.30 to −0.50.
Your definitive ally. Both legs lose value over time, but the short one decays faster. You gain with every day that passes.
The short call carries larger negative vega, the long call smaller positive vega. Net is negative: rising volatility hurts the position.
Both legs carry gamma, but the short leg’s negative gamma dominates. Net negative gamma hurts you on large upward moves.
Position Management
- 01 Close at 50% of Maximum Profit Do not wait for expiration. Once you have captured 50% of the credit ($175 of $350), close both legs immediately and open a new spread. It is more capital-efficient.
- 02 Set a Defensive Stop Loss If price approaches the short strike and you are down 25–50% ($87–175), close the position. A small loss beats assignment risk.
- 03 Roll Up if Needed If price rises toward the short strike, close the current position and roll to higher strikes and a later expiration to adjust the risk.
- 04 Watch Proximity to Expiration Under 7 days to expiration, gamma increases sharply. Price moves have an exaggerated impact. Consider closing early.
- 05 Understand Your Real Risk Your maximum loss is the strike width minus the credit: $650 in this example. Make sure you can absorb that loss on every trade you place.