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Strategy: Bear Call , 1 strike down to ATM strike

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

Bear Call Option Graph

The Outlook: Very bearish. The stock must fall just to breakeven. The stock must fall more to show a gain.

The Trade: buy Call ATM and sell Call ITM.

Gains when: stock falls below the breakeven point.

Maximum Gain: Initial credit.

Loses when: stock rises, does not fall, or does not fall enough.

Maximum Loss : limited to the difference in strike prices - the initial credit.

Breakeven Calculation: Short Call strike + initial credit.

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

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

Volatility: after entry, increasing implied volatility is positive if the stock rises, but negative if the stock falls. Since you are bearish (you expect the stock to fall), the best time for entry is when volatility is high, so that a return to normal (lower) volatility helps the strategy.

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

Margin Requirement: The difference in strike prices x the number of shares represented, less the initial credit.

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

Synthetic Equivalent: Short Stock plus Short Put OTM plus Long Call ATM.


  • This Bear Call can be used if you are very bearish on a stock, but want to receive a credit for entry instead of buying an ATM Long Put. This is especially true if the options have a higher-than normal IV. Just buying a long put puts you at a disadvantage in terms of the higher price caused by the higher IV. Selling some high IV with the Bear Call levels the playing field.
  • The strategy has limited profit potential to the downside, so you don't want to be "too" bearish.
  • A situation that might fit this Bear Call strategy is one in which a stock has just started to fall, and stock holders are starting to get fearful and are therefore buying puts, which will increase the IV. If you expect a further drop in the stock, the strategy can benefit from a further drop in stock prices, but not "too much", so the IV stabilizes or returns to normal levels.


  • Since this is a very bearish position, the trader is expecting the stock to fall. If the stock does not fall, the trader would be wise to cut his losses short. If the stock stays above the breakeven point and the time to expiration drops to just a couple weeks, you can see from the option graph that the loss will be less than the maximum, and it is probably best to take it. Just sitting and waiting could likely result in the maximum loss.
  • 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.
  • Exiting a Bear Call near the expiration date depends on the current stock price:
    • If the stock is below the short strike, both options will expire worthless and you don't need to do anything.
    • If the stock is above the short strike and the time value of the short call drops to .05 or .10, you should trade out of the short call, otherwise you risk being "called out" of shares you don't have.
    • If the stock is above both strikes you should close out both calls.


  • It is possible to roll the entire bear call to lower strike prices if the stock drops, but that really amounts to taking a gain on one trade and opening another.
  • It is possible to roll the entire bear call to higher strike prices if the stock rises, but that really amounts to taking a loss on one trade and opening another. Plus, you are entering another bearish strategy yet the stock is acting bullishly.
  • 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, with the same or lower strike prices, if you are still bearish on the stock.

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