Bear Call Spread
Example: XYZ stock is trading at $63
Outlook: You are moderately bearish on XYZ stock and expect it to go lower in the near term.
Possible Strategy: Bear Call Spread:
Sell one 65 strike call at $1.00
Buy one 70 strike call at $.20
Net Credit $.80
- Maximum Profit = Net Credit Received
- Maximum Profit = $80
- Breakeven = Short Call Strike + Net Credit Received
- Breakeven = 65.80
- Maximum Loss = Difference in Strike Prices - Net Credit Received
- Maximum Loss = 420
In Summary: The Bear Call Spread strategy is executed when an options trader believes the price of the underlying will decrease moderately in the near term. It would be ideal to have both options expire worthless. The profit and loss of this trade is limited.