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Strategy: Bear Call , (1 strike down to 1 strike up)

a.k.a. Bear Call: Spread, Vertical, Credit Spread

Bear Call Option Graph

The Outlook: Bearish. The stock must fall by some amount to show a gain.

The Trade: buy Call OTM and sell Call ITM, same distance from current stock price.

Gains when: stock falls.

Maximum Gain: initial credit.

Loses when: stock rises, or does not fall.

Maximum Loss : limited to the difference in strike prices x the number of shares represented - the initial credit.

Breakeven Calculation: Short Call strike + initial credit.

Advantages compared to short stock: limited risk, less margin needed, greater leverage.

Disadvantages compared to short stock: gains are limited to the downside if stock falls more than the sold strike.

Volatility: after entry, increasing implied volatility is negative if the stock falls, but positive if the stock rises.

Time: after entry, the passage of time is positive if the stock falls, but negative if the stock rises.

Margin Requirement: difference in strike prices x number of shares represented.

Variations: see the Vertical Spread Strategies page and the All Bear Call credit spread graphs page.

Synthetic Equivalent: Short Stock plus Short Put at lower strike plus Long Call at upper strike.


  • This Bear Call can be used if you are bearish on a stock, but want to have a better chance of a gain than buying an ATM Long Put. The ATM Long Put must fall by the amount of the debit, this Bear Call has a gain with any drop in the stock price.
  • The gains are limited to the downside, so you don't want to be "too" bearish.
  • Over the range of strike prices used, the position will gain or lose a dollar amount nearly the same as holding a short stock position.


  • Since this is a bearish position, the trader is expecting the stock to fall. If the stock rises instead, the trader would be wise to cut his losses short. Using the example graph, if the stock rises to about $52.50 at any time, the loss would be about $200, and it is probably best to take it. Just sitting and waiting could likely result in the maximum loss of more than twice that amount.
  • If the stock falls most of the way to the sold strike, the trader should stick with the position. As the option graph shows, just the passage of time is a benefit at any stock price near the sold strike.
  • If the stock falls below the strike you sold by expiration, both calls will expire worthless and you do not need to trade out of them, saving commission costs.


  • It is not usually recommended to adjust one part of a Bear Call. If you take a trading profit on the short calls when the stock drops for instance, you are actually increasing your maximum risk. You might think you will sell the calls again the next time the stock goes up, but what if it doesn't?
  • It is possible to roll the entire bear call to higher strike prices if the stock rises, but that really amounts to closing one trade at a loss and opening another trade in hopes of a gain. Plus, the stock has not behaved bearishly yet you are taking a second bearish position.
  • Or if the stock falls to near the sold call strike with expiration near and you have made 80% or so of the total possible on the short calls, you can roll everything out to the next month, and lower strike prices, if you are still bearish on the stock.

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