Course Description
The Bear Call Spread is a "Credit Spread." Unlike buying options where you pay money out, here you receive money into your account immediately. You are essentially betting that the US 500 has a "ceiling" it won't break. We will use a US 500 example to show how to collect premium while keeping your risk strictly defined and your profits tax-free.
⚠️ Important: Our Philosophy on Risk
Why we use Spreads, not Short Calls: At ShareNavigator, we do not teach or recommend the "Naked Short Call" strategy. We believe the risk of selling a call without protection is not worth the reward, especially given that stock market indices are fundamentally designed to rise over the long term. A "Naked" call has theoretically unlimited risk; by using a Bear Call Spread, we ensure your risk is always capped and your "insurance" is always in place.
Module 1: Traditional Options vs. Spread Betting
Since you are using IG Index, you are trading via Spread Bets, which offers specific advantages for traders in the UK and Ireland.
Tax Status: Profits are exempt from Capital Gains Tax (CGT) and Stamp Duty.
The Credit Advantage: You receive a "Net Credit" upfront. You are the "house" in this scenario, collecting premium from other traders.
Margin Requirement: Because you are selling an option, IG will require margin to be held in your account. However, because you are also buying a further out-of-the-money call, your total risk is capped.
Currency: We calculate this in USD to match the US 500 index.
Module 2: What is a Bear Call Spread?
A Bear Call Spread involves selling a call option and simultaneously buying another call option at a higher strike price.
The Goal: The US 500 stays below your "ceiling" (the short strike).
Three Ways to Win: You keep the full profit if the market goes Down, stays Flat, or even Rises slightly (as long as it stays below your strike).
Defined Risk: The higher call you buy acts as insurance, protecting you against a massive market rally.
Module 3: The US 500 Case Study (The Income Setup)
Current Market: US 500 @ $6,970
The Setup:
Leg 1 (Short): Sell $7,100 Call @ 35.67 pts (Collected)
Leg 2 (Long): Buy $7,200 Call @ 13.79 pts (Paid for insurance)
The Math at $5 per point:
Net Credit Received: 35.67 - 13.79 = 21.88 pts
Instant Income (Max Profit): 21.88 x $5 = $109.40
Spread Width: 7,200 - 7,100 = 100 pts
Maximum Risk: (100 pts - 21.88 credit) x $5 = $390.60
Breakeven: 7,100 (Short Strike) + 21.88 (Credit) = 7,121.88
Module 4: Probability of Profit (PoP)
This strategy offers a significantly higher Probability of Profit than shorting the stock or buying a long put.
Strategy | You Win If Market... | Win Rate Probability |
Short Stock | Falls Significantly | ~33% |
Bear Call Spread | Falls, Stays Flat, or Rises up to 2.1% | ~75% to 80% |
The Buffer: With the index at 6,970, your ceiling is at $7,100. This gives you a $130-point buffer (approx. 1.8%). You can be "wrong" about the market direction—the market can actually go up—and you still walk away with 100% of your profit.
Module 5: "What If?" Expiry Scenarios
What happens to your $109.40 credit at expiry?
Scenario A: US 500 stays Flat or Falls (closes at $6,970 or lower)
Both calls expire worthless. You keep the entire $109.40.
Total Result: Profit of $109.40.
Scenario B: US 500 Rises to $7,050 (Small Rally)
The market rose by 80 points, but stayed below your $7,100 "ceiling."
Total Result: Profit of $109.40.
Scenario C: US 500 Rallies to $7,300 (Massive Move Up)
The market broke through your ceiling. Your insurance (the $7,200 call) prevents further loss.
Total Result: Max Loss of $390.60.
Module 6: The "Delta Compass" Workaround
Since IG Index doesn't show Greeks, use an external tool like Yahoo Finance to verify your strikes.
Check Delta: For this income trade, ensure your $7,100 Short Call has a Delta of 0.20 or lower.
The Result: A 0.20 Delta gives you the statistical "casino edge" you need to win consistently.
Strategy Comparison: Risk vs. Probability
Choosing the right strategy depends on your market view and your risk tolerance. At ShareNavigator, we emphasize Probability of Profit (PoP) over "lottery ticket" home runs.
Strategy | Market View | Max Profit | Max Risk | Probability of Profit | Best For... |
Aggressively Bullish | Unlimited | Premium Paid | ~30% - 40% | Fast-moving rallies. | |
Aggressively Bearish | Significant | Premium Paid | ~30% - 40% | Hedging a crash. | |
Neutral to Bullish | Net Credit | High | 75% - 85% | Consistent income. | |
Neutral to Bullish | Net Credit | Capped | 70% - 85% | Consistent income. | |
Bear Call Spread | Neutral to Bearish | Net Credit | Capped | 70% - 85% | Selling "resistance." |
Moderately Bullish | Capped | Net Debit | ~50% - 60% | Cheap bullish entry. | |
Moderately Bearish | Capped | Net Debit | ~50% - 60% | Cheap bearish entry. |
Why Credit Spreads Have a Higher Win Rate
A common question students ask is: "Why not just short the stock or buy a long put if I'm bearish?"
The answer lies in the three directions of the market:
Shorting a Stock / Long Put: You only win if the market moves DOWN. If the market stays flat or goes up, you lose. (1 out of 3 scenarios).
Bear Call Spread: You win if the market moves DOWN, stays FLAT, or even RISES SLIGHTLY (as long as it stays below your ceiling). (3 out of 3 scenarios).
By "selling" time and volatility instead of just betting on direction, you turn the math of the market in your favor.
💡 The ShareNavigator Golden Rule
"We don't try to predict the next 500-point move. We try to identify the 300-point range where the market won't go. Trading is not about being 'right'; it's about not being 'wrong' enough to lose money."
🧪 Practice Before You Trade (Risk-Free)
We strongly recommend that all our students start by practicing these strategies in a simulated environment. This allows you to master the IG deal ticket, understand price fluctuations, and test your "Option Income Engine" without risking a single penny.
Switch to a live account only once you are comfortable with the platform and your strategy execution.
🚀 Free Strategy Call
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