Bear Call is a mildly bearish option strategy with a credit entry.
option-info and options-graphs sites:
Call , ATM strike to 1 strike up
Bear Call Spread, Bear Call Vertical
Outlook: Neutral to mildly bearish. The stock must stay near where
it is at the time of entry, or fall, for the strategy to gain
buy Call OTM and sell Call ATM.
when: stock stays put, rises slightly, or falls.
Gain: Initial credit.
when: stock rises beyond the breakeven point.
Loss : limited to the difference in strike prices - the initial credit.
Calculation: Short Call strike + initial credit.
compared to short stock: limited risk, less capital needed, greater
compared to short stock: gains are limited to the downside if stock
falls below the sold strike, can also gain if stock stays put or rises
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.
after entry, the passage of time is positive if the stock falls,
but negative if the stock rises.
Requirement: The difference in strike prices x the number of shares
represented, less the initial credit.
see the Vertical Spread Strategies page and
Bear Call credit spread
Equivalent: Short Stock plus Short Put ATM plus Long Call OTM.
Bear Call can be used if you are neutral to bearish on a stock, but
want to receive a credit for entry instead of buying a 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
- The strategy
has limited profit potential to the downside, so you don't want to be
- A situation
that might fit this Bear Call strategy is one in which you believe a
stock has "peaked" on over enthusiasm, which will increase
the IV. If you expect a drop in the stock, the strategy can benefit
from a drop in stock prices as well as the IV returning to normal levels.
comfortable and successful with the Covered
Call or Bull Call, -1 to ATM
strategies might consider this Bear Call for taking advantage of mild
downtrends. It has the same features of limited gains with some "upside"
protection instead of "downside" protection.
this is a mildly bearish position, the trader is expecting the stock
to stay put or fall. If the stock rises, the trader would be wise to
cut his losses short. Using the example graph, if the stock price rose
to about $52.50 at any time, the trade could be exited for about a $100
loss. Just sitting and waiting could result in a loss more than three
times that amount, or $341.
- If the
stock falls below 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.
a Bear Call near the expiration date depends on the current stock price:
the stock is below the short strike, both options will expire worthless
and you don't need to do anything.
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
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
- 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