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The Different Option Strategies
Bear Call Spread
A Bear Call spread is a limited risk, limited reward trade to be used when you expect the market to trade sideways or move lower.
Bear Call Spread
Risk: Limited
Reward: Limited
The Trade: Sell a call short and simultaneously purchase a call with a higher strike price

ABC Stock trading at £5.00

Sell short 1 Sep £5.00 call (A), buy 1 Sep £5.50 call (see pay-off diagram below)

Options - Bear Call Spread

When to use: Moderately bearish or expect at least sideways movement. Remember you're selling time so will benefit from the natural time decay of the more expensive option sold.
Volatility expectation: Neutral to bearish
Profit: The premium you receive upon opening the spread.
Loss: The difference between the two strike prices minus premium received.
Breakeven: Lower strike plus premium received
Time decay: Helps

Trading ideas and tactics:

  • Good strategy for use for markets that are trading in a range
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