Bear Call Spread

What is a bear call spread?

A bear call spread is a two-leg options strategy that sells a lower-strike call and buys a higher-strike call in the same expiration for a net credit. It earns its maximum profit when the stock finishes at or below the short strike at expiration, and the long call caps the loss if the stock rallies. Traders also call it a call credit spread or a short call vertical.

Both calls use matching underlying, deliverable, expiration, and quantity. The long call sets the upper boundary of the complete spread’s expiration loss, so the worst case is known before the trade is placed. The position expresses a neutral to bearish view.

How to calculate bear call spread profit, loss, and breakeven

The example sells the 105 call for $2.50 and buys the 110 call for $1.00. One standard spread collects $150. Its maximum expiration loss is $500 of strike width minus the $150 credit, or $350. Breakeven is $105 plus $1.50, or $106.50.

At $105 and every lower expiration price, both calls have zero intrinsic value and profit is $150. At $108, the short call has $300 of intrinsic value, producing a $150 loss after the credit. At $110 and every higher expiration price, the maximum loss is $350.

How to choose bear call spread strikes and width

Use price structure, call walls, and options flow to choose the price ceiling you want to model. Compare higher long strikes to set the width and dollar exposure.

Hold the short strike and expiration fixed while comparing widths. Then compare different short strikes by their entry credits, breakevens, complete loss limits, and probabilities of finishing in profit.

Enter the two calls together with a net credit limit. Confirm the broker’s buying-power requirement and size the position from its complete dollar exposure. The options profit calculator shows the entry credit, target price range, and maximum expiration loss in one view and tests the position across dates and volatility inputs.

Bear call spread P&L before expiration

The stock’s expiration price determines the payoff above. Before expiration, current P&L is the entry credit minus the complete closing debit. A current loss starts when the spread costs more to close than its opening credit. For example, a $200 buyback against the $150 entry credit produces a $50 loss. The expiration breakeven remains $106.50.

Net Greeks equal the long call’s Greek minus the short call’s Greek. Calculate theta and vega from both options at the current price. Their signs change across the strike range, so inspect the complete package at the dates and prices in your plan.

Closing a bear call spread and early assignment

To exit the spread, buy back the short call and sell the long call together. Selling only the long call leaves the short call uncovered. Assignment of a standard short call delivers 100 shares; exercise of the long call buys 100 shares. Plan those stock transitions around expiration and the ex-dividend date.

Risks and limitations of bear call spreads

• Size the spread from its maximum loss. The example risks $350 to collect $150, and at expiration the loss reaches its maximum at or above the $110 long strike.
• When the spread has negative net vega, rising implied volatility raises its buyback cost. Calculate both legs’ vega at the current price, time and volatility inputs.
• Watch the ex-dividend date. The American-style short call on most single-name stocks can be assigned early, most often just before it, and assignment leaves a short stock position while the long call stays open.
• Enter and exit with one net limit order. Each leg pays a bid-ask spread on entry and again on exit, and those costs come out of a $150 maximum profit.
• An expiration price between the strikes leaves the short call in the money and the long call worthless. Expiration exercise is automatic for an in-the-money call unless its holder declines, so close both legs before the bell or wake up short 100 shares.

Bottom line

Collecting $150 against a $350 maximum loss, the 105/110 bear call spread keeps the full credit only when XYZ finishes at or below $105. Sell it on a stock you expect to stall under the short strike, size it from the $350, and close both legs together.