Bear Call Spread
The bear call spread is used by investors who have bearish outlook on particular stock. This is a low risk, low reward strategy. To create a bear call spread, you can use a call option at current market price. Similar with the bear put spread, you will profit when the price of the stock drops. The bear call spread is done by selling at the money calls and then purchasing out of the money calls.
For example, you can use a bear call spread if ABC stock is trading at $60.22. Here, you can purchase 10 64 calls and sell 60 calls. The expiration date should be the same. As the stock is trading at 60, you can then sell the 60 calls at $ 3.70 and then buy the 64 calls at $2. Here you can initiate the spread for only $ 1,700. If the price of the stock falls, the options will expire without a value. You can then keep the premium, which is your $1,700.
|ABC trading @ $60.22|
|Buy 10 64 Calls @ $2.00||$2,000.00|
|Sell 10 JUL 30 Calls @ $3.70||($3,700.00)|
|Credit from Trade||($1,700.00)|
You might want to review the bull call spread and the bear put spread since they are similar with the bear call spread.
|Bullish Strategies||Neutral Strategies||Bearish Strategies|