What Is a Bear Call Spread?
A Bear Call Spread is a credit spread using Call options. You sell a lower strike Call (near the current price) and buy a higher strike Call (further OTM) to cap the risk.
- Market View: Moderately Bearish (expect price to stay below the short Call).
- Volatility View: Works best in high IV, when option premiums are rich.
- Risk/Reward: Both are limited.
š¹ Example
- Underlying: Nifty @ 20,000
Positions:
- Sell 20,000 Call = ā¹200
- Buy 20,400 Call = ā¹80
Net Credit = 200 ā 80 = ā¹120
š¹ Payoff Analysis
- Max Profit = Net Credit = ā¹120
- Max Loss = Spread Width ā Net Credit
= (400 ā 120) = ā¹280 - Breakeven = Short Call Strike + Net Credit
= 20,000 + 120 = 20,120
š¹ How Profit Is Achieved
- If Nifty ā¤ 20,000
- Both Calls expire worthless.
- You keep the entire ā¹120 credit (Max Profit).
- If Nifty ā„ 20,400
- Short Call loses 400, Long Call gains 120.
- Net = ā280 = Max Loss.
š¹ Notes
- A Bear Call Spread is a neutral-to-bearish credit strategy.
- It profits if the underlying stays below the short Call strike.
- The risk is capped above the long Call strike.