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.
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