The bear call spread option trading strategy is employed when the options trader thinks that the price of the underlying asset will go down moderately in the near term.
The bear call spread option strategy is also known as the bear call credit spread as a credit is received upon entering the trade.
Sell 1 call at the lower strike price; Buy 1 call at the higher strike price. Use the same expiration date.
Bear call spreads can be implemented by buying call options of a certain strike price and selling the same number of call options of lower strike price on the same underlying security with the same expiration date.
Limited Downside Profit
The maximum gain attainable using the bear call spread options strategy is the credit received upon entering the trade. To reach the maximum profit, the stock price needs to close below the strike price of the lower striking call sold at expiration date where both options would expire worthless.
The net premium received.
Limited Upside Risk
If the stock price rises above the strike price of the higher strike call at the expiration date, then the bear call spread strategy suffers a maximum loss equal to the difference in strike price between the two options minus the original credit taken in when entering the position.
The difference between the two strikes minus the net premium received.
Breakeven Point(s)
Lower strike price plus the net premium received, when that price lies between the strikes.
Bear Call Spread Example
Suppose XYZ stock is trading at $37 in June. An options trader bearish on XYZ decides to enter a bear call spread position by buying a JUL 40 call for $100 and selling a JUL 35 call for $300 at the same time, giving him a net $200 credit for entering this trade.
The price of XYZ stock subsequently drops to $34 at expiration. As both options expire worthless, the options trader gets to keep the entire credit of $200 as profit.
If the stock had rallied to $42 instead, both calls will expire in-the-money with the JUL 40 call bought having $200 in intrinsic value and the JUL 35 call sold having $700 in intrinsic value. The spread would then have a net value of $500 (the difference in strike price). Since the trader has to buy back the spread for $500, this means that he will have a net loss of $300 after deducting the $200 credit he earned when he put on the spread position.
These examples use standard U.S. stock options with a 100-share contract size and matching expiration dates. Related structures can use ETF, index or futures options, but contract multipliers, exercise style, settlement and the underlying price range can differ. A stock’s zero price floor must not be assumed for every futures contract.
Commissions
For ease of understanding, these examples exclude commissions, fees and financing costs. Include all costs when comparing an actual position; there is no universal commission amount.
For active traders, transaction costs can consume a significant part of returns. Compare the full commission and fee schedule, exercise and assignment charges, and bid-ask spreads. The cost of entering and closing every leg matters.
Aggressive Bear Call Spread
Changing either strike changes the entry premium, maximum profit, loss and breakeven. Widening the spread alone does not imply that a larger directional move is needed for maximum profit; the relevant short or long strike determines the expiration profit region.
Bear Spread on a Debit
The bear call spread is a credit spread as the difference between the sale and purchase of the two options results in a net credit. For a bearish spread position that is entered with a net debit, see bear put spread.
Amounts are per share before fees. Multiply by the shares covered by the position; standard equity options usually cover 100 shares per contract. If a maximum profit or loss calculation gives a negative amount, use zero. These figures assume matching contracts held to expiration and do not include financing or early assignment.
Before expiration and assignment
The diagrams and worked outcomes describe expiration payoffs, not an option’s market price before expiration. Time decay, implied volatility, rates, dividends and bid-ask spreads affect early closing values. American-style short options can be assigned early; a protective long option is not automatically exercised when a short leg is assigned. Closing or exercising one leg can change the remaining position’s risk.
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References: OIC options basics; OIC assignment; OCC contract adjustments. Editorial standards.