Bear Call Spread
Composition
The bear call spread consists of Short (sell) one call option with a lower strike price and long (buy) one call option with a higher striker price.
Risk/Reward
Max Reward: Limited profit potential. Limited to the net premium received for entering the position. In other words, the premium you receive for the short call minus the premium you paid for the long call.
Max Risk: Limited risk potential. Limited to the difference between the 2 strike prices minus the net premium received.
Characteristics
The bear call spread is a bearish position. It is a short delta spread and takes advantage of underlying securities such as stocks and EFTs going down. Best used with stocks in a slow grinding downtrend.
The bear call spread is one of the most cost effective methods to get take a bearish position in the markets. The only downfall is the limited gain potential.
The vertical spread is an incredibly durable, flexible and powerful strategy and will most definitely be a widely used weapon in the arsenal of an option trader.
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