Welcome to the Bear Call Spread course! This strategy is perfect for traders who are mildly bearish on a stock or index.

Simply put, a Bear Call Spread combines call options to profit if you believe a stock will stay below a certain price. It's an options spread with defined risk and reward.

We achieve success rates over 80% with our approach to this high-probability strategy.

In this course, you'll learn:

We'll also cover the pros and cons of this strategy.

The course includes videos, PDFs, quizzes, assignments, and more. Completing the assignments is crucial – the best way to learn options is by doing. You'll have access to a demo account to practice these strategies risk-free. So, practice, practice, practice!

The bear call spread is made up entirely of call options on the same underlying stock (or index). It’s constructed by purchasing a call with one strike price and selling (writing) another call with a lower strike price but the same expiration month.

The ratio of long calls to short must be 1:1. The result is a position consisting of a long call (higher strike) and a short call (lower strike). An investor with this position can be said to hold a bear call spread.

A spread involves both long (buying) and short (selling) option contracts of the same type (calls or puts) on the same underlying asset. The long and short positions are called "legs," and they typically profit from opposite price moves. Spreads are "complex" due to their structure, not their difficulty.

Spread types:

Vertical and horizontal spreads are most common.

Straddles and strangles (using both calls and puts) are similar two-legged strategies (one bullish, one bearish) and are often grouped with spreads.

Cash flow at the start:

Debit spreads are typically opened for a debit and closed for a credit, while credit spreads are the reverse. Sometimes, a spread can be opened or closed for "even money."

Because the long (higher-strike) call costs less than the premium received for the short (lower-strike) call, a bear call spread is always a net credit when opened. You receive more cash than you pay out. Bear call spread = credit spread.

SPY is trading at $226.51. We want to create a high probability bearish trade. Look at the option quotes below for SPY which expire in 6 weeks.

SPY is trading at $226.51. We want to create a high probability bearish trade. Look at the option quotes below for SPY which expire in 6 weeks.

To establish a bear call spread with SPY options, we would sell 1 SPY Jan 20th $231 call for $0.89, and at the same time buy 1 SPY Jan 20th $232 call for $0.70. The result is us holding 1 SPY Jan 20th $231/$232 bear call spread, at a $0.19 ($0.89 – $0.70) net credit or $19 total.

The bear call spread is a moderately bearish position. By employing this strategy on SPY we expect to profit from a decrease in its price. However, it’s a moderately bearish position since we generally expect SPY to stay below the $231 short call’s lower strike price by expiration. Below that level, the profit is capped. A more bearish investor might instead simply buy puts outright, buy an out-of-the- money bear put spread or simply short the stock.

Since we are only moderately bearish on SPY the risk of selling a call might represent more upside risk than we are willing to take. By purchasing the higher- strike $232 call, the upside risk of the $231 short call is covered if our bearish forecast is incorrect and SPY goes up instead. The trade-off for buying upside protection in this manner is reduced downside profit potential on the short call contract.

The maximum downside profit for a bear call spread is limited to the net credit received when establishing it. This profit will be seen if SPY closes at or below the $231 lower strike price of the short call at expiration, no matter how much SPY decreases.

For our example with SPY May 27th $231/$232 bear call spread, if at expiration SPY closes at or below the lower strike price of $231, both call options would expire with no value, and the net $19 credit initially received for the spread would be the maximum profit.

Note: Do not under-estimate the $19 max profit in this example. It might appear very small, but when looked at from a ‘return on investment’ point of view, it will become apparent how powerful this strategy is.

The maximum upside loss for a bear call spread is limited to the difference between the calls’ strike prices, or the spread’s maximum value, less the credit initially received for the spread.

In our SPY example, this loss will be seen if SPY closes at or above the higher $232 strike price of the long call at expiration, no matter how high the SPY increases.

For our example with SPY Jan 20th $231/$232 bear call spread, if SPY trades above $232 at expiry the maximum loss will be:

$1 (difference between strike prices) - $0.19 (credit received)

= $0.81 or $81 total

This is a real benefit of this strategy, we know exactly what we can make and what we can lose before we even place the trade. This is excellent for total beginners or novice option traders.

The return on investment is very substantial, I think you will agree? Especially for a 6-week investment! Keep reading, the news gets better!

At expiration, the break-even price for the SPY bear call spread example would be a closing SPY share price equal to $231 (lower strike price) + $0.19 (net credit received) = $231.19

A key benefit of the bear call spread is the "upside leeway" it offers. SPY, at $226.51, with our $231/$232 bear call spread, has a breakeven point of $231.19. SPY can rise $4.68 (2.06%) before we lose money at expiration.

Which is more likely: SPY closing below $226.51, or below $231.19? Clearly, $231.19 is much more probable. Brokers typically show the probability of profit (in this case, 76%).

This doesn't guarantee a win, but it significantly improves your odds.

Now, you can see the benefit of this strategy. We have a 76% probability of making a return on investment of 23.46% in 6 weeks! This is not a guaranteed return but the odds of winning are high. At Share Navigator, we increase our odds to over 80% and are happy to take in less premium to increase our odds. Our results have been 84% profitable versus 16% loser.

At expiration, if SPY closes at a price between the $231.19 break-even price and either of the two strike prices $231 & $232, either a partial loss or partial profit would be seen. Below the break-even price there would be a partial profit; above the break-even point there would be a partial loss.

Before expiration, an investor can take a profit or cut a loss by purchasing the spread in the marketplace. This involves selling the long call and buying the short call, which will be done at a net debit, and these closing trades may be executed simultaneously in one spread transaction. Profit or loss would simply be the net difference between the credit initially received for the spread and the debit paid to close it.

Watch the video below showing you how to do P&L tables for the Bear Call spread.

It is important for you to get into the habit of creating profit and loss tables.. Here is an example of a P&L table for the SPY Jan 20th $231/$232 bear call spread. Remember we received $0.19 for the spread:

The financial impact of a change in volatility depends on whether one or both calls are in-the-money and the amount of time until expiration. The bear call spread is best placed when implied volatility is high as it generally means you can command more premium from the trade.

Theta is the rate of decay in the time value of an option. For a bear call spread, if SPY is closer to the higher $232 strike of the long call, losses should increase at a faster rate as time passes. Conversely, if the SPY is closer to the $231 lower strike of the short call, profits should increase at a faster rate with time. Look at the quotes again below:

Positive theta works against you and negative theta works for you. For a bear call spread, we have two positions to consider for theta.

This means that for our SPY $231/$232 bear call spread, $0.004 per share or $0.40 per contract per day is eroding from the value of the position. This is positive for us. It might not sound a lot but when you consider the credit on the trade was only $19 per contract, the theta erosion is substantial, especially if you traded several contracts.

Watch the video below on the impact of Theta on the Bear Call Spread.

Delta is the rate of change in the value of an option for a $1 move in the underlying share price. In our example with the SPY Jan 20th $231/$232 bear call spread we have two positions to consider. See option quote below.

A delta of -0.041 means that for a $1 rise in the share price of SPY the value of the SPY Jan 20th $231/$232 bear call spread will fall by $0.041 per share or $4.10 and vice versa.

We can also consider delta as being short 4.1 shares of SPY. Think about it...if SPY rose by $1 and we were short 4.1 shares we would make a loss of $4.10. The exact same as the SPY Jan 20th $231/$232 bear call spread.

A couple of things to know about delta:

Watch the video below showing the impact of Delta on the Bear Call Spread.

Some bear call spreads can be considered more bearish than others. The degree of bearishness depends primarily on the strike price of the short call, which determines how low the underlying stock (or index) needs to decline for maximum profit to be realized at expiration.

At Share Navigator, we prefer out-the-money strikes for this strategy.

Assignment on any Equity option or American-style index option can, by contract terms, occur at any time before expiration, although this generally occurs when the option is in-the-money.

For an equity call option, early assignment usually occurs under specific circumstances; such as when underlying shareholders are about to be paid a dividend. Assignment at that time might be expected when the dividend amount is greater than the time value in the call’s premium, and notice of assignment may be received as late as the ex-dividend date. If a bear call spread holder is assigned early on the short call, then he might exercise his long call, if it is in-the-money, and buy shares to fulfill the assignment obligation. In this case, maximum loss on the bear call spread would be realized.

Note: An investor with a bear call spread is short a lower-strike call and long a higher-strike call. It is therefore entirely possible that if the short call is in-the- money and early assignment is received, the long call would be out-of-the-money. In this case, it may not make financial sense to exercise the long call early to buy shares for delivery per the assignment obligation.

Therefore, the investor has choices:

An investor contemplating the use of a bear call spread should consider the consequences of early assignment, and in advance discuss with his broker a course of action to take if assigned.

If early assignment is received on a short in-the-money call of a bear call spread, the cash settlement procedure for index options will create a debit in the investor’s brokerage account equal to the cash settlement amount. This cash amount is determined at the end of the day the long call is exercised by its owner.

After receiving assignment notification, usually the next business day, if his long call is also in-the-money the investor may exercise that contract. The cash settlement amount credited to his account will be determined at the end of that day, and there is a full day’s market risk if the long option is not sold during the trading day assignment. If the long call is not in the- money, after the cash settlement amount is debited from his account via assignment the investor would remain long an out-of-the-money index call.

Watch the video below for a more detailed explanation.

The action you take at expiry will depend on where the share price is trading at:

This is a top strategy for us and our members, especially beginners. We love that it lets you make high-probability bearish trades using out-of-the-money calls, offering significant ROI and, crucially, defined risk. You know exactly your potential profit and loss before you trade, and you don't need a large account. The ROI is also excellent.

While more experienced traders might prefer the call ratio spread, the bear call spread is a great fit for everyone.

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At this stage it is best if you start practicing for real so this is what we want you to do:

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