Bear Call Spread
Sell a call and buy a higher call to collect credit. Profit if the stock stays below the short strike. A bearish credit spread.
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What is a Bear Call Spread?
A bear call spread is a credit spread on the call side. You sell a call at a lower strike and buy a call at a higher strike, same expiration. You collect a net credit upfront, and you profit when the stock stays below the short call strike. The bought call limits your risk if the stock rallies.
This is the bearish mirror image of the bull put spread. It is popular with traders who want income from a bearish or neutral outlook with clearly defined risk.
How to Set It Up
- Sell 1 call at the lower strike (closer to current price)
- Buy 1 call at the higher strike (further OTM)
- Same expiration for both legs
- Strike selection: Sell the call above a resistance level you think the stock will not break through. The width between strikes defines your max risk.
- Expiration: 30-45 days out to take advantage of time decay.
You collect a net credit when you enter. If the stock stays below your short strike through expiration, you keep the full credit.
When to Use This Strategy
Use a bear call spread when:
- You are neutral to moderately bearish
- The stock is at or near resistance and you do not expect it to break through
- You want to profit from time decay
- Implied volatility is elevated, giving you richer premiums
- You want a defined-risk bearish income trade
This is not for when you expect a stock to crash. If you think a big drop is coming, a long put or bear put spread gives you more profit potential on a big move. The bear call spread is for when you think the stock will go sideways or drift lower.
Example Trade
Stock XYZ is trading at $100. You think it will stay below $105.
- Sell 1 XYZ $105 call for $2.00
- Buy 1 XYZ $110 call for $0.75
- Net credit: $2.00 - $0.75 = $1.25 ($125 collected)
- Max profit: $125 (the credit)
- Max loss: ($110 - $105 - $1.25) x 100 = $375
- Breakeven: $105 + $1.25 = $106.25
If XYZ stays below $105, both calls expire worthless and you keep $125. If XYZ rips to $115, you lose the max $375.
If XYZ is at $106 at expiration, your short call is $1 ITM and your long call is worthless. You lose $100 but collected $125, so you are still up $25.
Risk and Reward
- Max profit: Net credit received. $125. Achieved when stock closes at or below the short strike at expiration.
- Max loss: (Strike width - net credit) x 100. $375. Occurs when the stock closes at or above the long strike.
- Breakeven: Short strike + net credit. $106.25.
Like the bull put spread, you are risking more than you can make on any single trade. The edge comes from probability. Selling OTM calls means you win as long as the stock does not have a big rally. That happens more often than not.
Tips and Common Mistakes
- Do not sell calls below strong support that has just broken. If a stock breaks out of a base, selling calls above the breakout level is fighting momentum. That is a losing game.
- Close at 50% of max profit. If you collected $125 and the spread is now worth $0.60, buy it back for $60 and pocket $65. Do not hold to expiration for the last few bucks.
- Be careful around earnings and catalysts. A surprise beat can send a stock through your short strike overnight. Avoid having bear call spreads open through earnings unless you are intentionally making that bet.
- Use it as half of an iron condor. Pair a bear call spread with a bull put spread on the same stock and same expiration, and you have an iron condor. Doubles your premium collected.
Related Strategies
- Bear Put Spread — a debit spread version of a bearish trade
- Bull Put Spread — the bullish version of a credit spread
- Iron Condor — combines a bear call spread and bull put spread into one trade
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