The At-the-Money Bear Call is a mildly bearish option strategy with a credit entry.


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Strategy: Bear Call , ATM strike to 1 strike up

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

Bear Call Spread Option Graph

The 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

The Trade: buy Call OTM and sell Call ATM.

Gains when: stock stays put, rises slightly, or falls.

Maximum Gain: Initial credit.

Loses when: stock rises beyond the breakeven point.

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, can also gain if stock stays put or rises slightly.

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 ATM plus Long Call OTM.


  • This 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 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 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.
  • Someone 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.


  • Since 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.
  • 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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