Bearish Option Strategies » Bear Call Spread

When your feeling on a stock is generally negative, bear spreads are nice low risk, low reward strategies.

One of the easiest ways to create a bear spread is by using call options at or near the current market price of the stock.

Like bear put spreads, bear call spreads profit when the price of the underlying stock decreases. Bear call spreads are typically created by selling at-the-money calls and buying out-of-the-money calls.

Example

Using the Nasdaq-100 Index Tracking Stock (QQQQ), we can create a bear call spread using in-the-money options. With QQQQ Trading at $30.11 in May, you might buy ten of the JUL 32 calls and sell ten JUL 30 calls.

With the underlying stock trading near $30, you'd sell the 30 calls for $1.85 and buy the 32 calls for $1. This way, you'd initiate the spread for a credit of $850, your maximum profit. If the stock moves lower, both calls will expire worthless and you'll keep the $850 premium you collected when you initiated the position.

Option purchase example
QQQQ trading @ $30.11
Buy 10 JUL 32 Calls @ $1.00 $1,000.00
Sell 10 JUL 30 Calls @ $1.85 ($1,850.00)
Credit from Trade ($850.00)

Bear call spread example graphicBear call spread example graphic

If you like the idea behind the bear call spread, be sure to check out bull call spreads and bear put spreads. These can be comparable strategies depending on your objectives.

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