Payoff Diagram

Description

The bear call spread is an income generating strategy which recieves a credit when placed. Risk is generally against the trader for example a 20% reward for 80% risk. Therefore if a position moves against you, a bigger loss than the premium recieved can be made.

Profit is generated if the share price at expiry is at or below the sold strike.

Steps Involved

Wait for a bearish trend to form

Sell 1 low strike call

Buy 1 higher strike call as protection

Rational

A trader is bearish, however not bearish enough to enter a bear put spread or bought put. A stock is expected to stay at or below a certain level.

Bear Call Spread Tutorials

This webinar by Stuart McClure from Minc Trading, analyses three different strategies.

The Credit Put Spread - A bullish speculative strategy used to cap the risks of selling naked puts whilst recieving a premium for the risk associated.

The Credit Call Spread - A bearish speculative options strategy that profits when stocks remain at or below a specified level.

The Iron Condor - An options strategy created when the Credit Call and Credit Put spread strategies are combined.