Call Bear Spread

Call Bear Spread

Components

Short one call option with a low strike price and long one call option with a higher strike price.

Risk / Reward

Maximum Loss: Limited to the difference between the two strikes minus the net premium.

Maximum Gain: Limited to the net premium received for the position. I.e. the premium received for the short call minus the premium paid for the long call.

Characteristics

When to use: When you are mildly bearish on market direction.

A call bear spread is usually a credit spread. A credit spread is where the net cost of the position results in you receiving money up front for the trade. I.e. you sell one call option (receive $5) and the buy one call option ($4). The net effect is a credit of $1.

This type of spread is used when you are mildly bearish on market direction. Same idea as the Call Bull Spread but reversed - i.e. you think the market will go down but think that the cost of a short stock or long put is too expensive.

Comments (3)

edwardlog2

June 4th, 2012 at 5:24am

Yes it is really like a credit spread. It is all about the buying and selling and its net cost. As well as call bull spread is reversed of that. This is very nice topic you discuss. Today these strategies are very popular in the field of stock marketing...Thanks...Keep it up

Peter

February 29th, 2012 at 4:04pm

Yep, you're right, that's a good point. It would be best to put it on the put side.

Leib chai

February 29th, 2012 at 8:31am

Hi
Doesnt this spread suffer from early excercise risk unlike the put bear spread if so why utilize this spread?

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