Bear Call Spread - Profit from Decline

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Reference

A bear call spread is a vertical spread where you sell a call at a lower strike and buy a call at a higher strike, both in the same month. Bearish strategy.

How It Works

Apple at $150:

Sell $150 call for $5
Buy $160 call for $1
Collect $4 net credit ($400 per contract)

Maximum profit: $4 per share ($400) if stock closes below $150. Maximum loss: $6 per share ($600) if stock closes above $160. Breakeven: $154 ($150 + $4 credit).

Why Use It

Collect premium upfront
Limited risk (difference between strikes minus credit)
Works when stock falls or stays flat
Better than naked short calls (limited risk)

Risk Profile

Maximum Profit: Credit collected

Maximum Loss: Width of strikes minus credit

Profitable Zone: Below the breakeven at expiration

When to Use

Use when moderately bearish or neutral. You profit from time decay and downward movement. The long call limits your risk if the stock rallies hard.

Adjustments

Close early at 50% max profit
Roll down if stock rallies
Let expire if OTM