Bear Call Spread
A defined-risk bearish/neutral credit strategy: sell a call and buy a higher call to cap risk.
When it works
- Bearish to neutral view
- You want premium income with capped risk
- You can manage position near expiry
Warning
Gap-up moves can hurt credit spreads. Avoid poor liquidity and keep risk defined.
Practical deep‑dive
Info
Profile
Best suited for a bearish or mildly bearish view.
Strategy snapshot (quick)
| Field | Value |
|---|---|
| Style | spread credit |
| Cost type | Typically a credit/income-style structure (you receive premium). |
| Best when | You expect price to stay within a range and prefer defined risk (credit spreads). |
| Watch out | Sharp moves/gaps can hurt quickly; manage size and avoid event-heavy expiries. |
Greeks to watch
Focus on these exposures first
| Greek | Why it matters |
|---|---|
| Theta | Often positive for sellers (time can help) |
| Delta | Direction exposure can change as price moves |
| Vega | IV expansion can hurt short premium positions |
Professional options traders focus on “structure first”: define risk, choose strikes/liquidity, and write down exit rules before entry. Most losses come from oversized positions and holding short-dated options without a plan.
Execution checklist
Use this before placing the trade
| Check | Why it matters | Quick test |
|---|---|---|
| Liquidity | Spreads can eat edge | Tight bid‑ask + decent volume/OI |
| Risk defined | Prevents blow-ups | Max loss is known and acceptable |
| Time horizon | Avoid time mismatch | Expiry matches your view timeframe |
| Volatility regime | Premium cost changes outcomes | IV not extreme vs recent range |
| Exit plan | Stops emotional decisions | Target/stop/time exit written down |
Mistakes to avoid
- Trading illiquid strikes (wide spreads) because premium looks “cheap”.
- Using market orders during fast moves and getting poor fills.
- Adding to losing positions without a predefined rule.
- Ignoring event risk (results, policy events) near expiry.
- Overusing weekly expiries before mastering risk control.
Summary (takeaways)
- Prefer defined-risk structures while learning.
- Liquidity and execution quality matter as much as strategy selection.
- Consistency comes from process, not predictions.