Bear Call Spread: How It Works, Example and Risks
A bear call spread sells a call and buys a higher-strike call, collecting a credit. Traders use it when they expect the stock to stay below the short strike. The main risk is a rally above the long strike.
At a glance
| Outlook | bearish |
|---|---|
| Level | intermediate |
| Max profit | Net credit × 100 |
| Max loss | (Width − credit) × 100 |
| Breakeven | Short strike + credit |
| Greeks exposure | Negative delta, positive theta, negative vega |
| Ideal IV environment | High IV |
Payoff diagram
Worked example
Sell the $105 call for $2.00, buy the $110 call for $0.80: credit $120. Breakeven $106.20. Max loss $380 above $110.
How to manage it
- Close at 50% of max profit.
- Watch for ex-dividend early assignment.
- Exit if price breaks resistance above the short strike.
Risks
- Loss larger than gain.
- Sharp rallies.
- Assignment on the short call.
Questions
What's the difference from a bear put spread?
This is a credit spread using calls; the bear put spread is a debit spread using puts.
When is max profit reached?
If price ends at or below the short strike.
Is risk defined?
Yes — the long call caps it.
Related
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