Bear Call Spread
Bear Call Spread – A credit spread buying OTM (higher strike price) Call and selling ATM (lower strike price) Call with 30 to 60 days until same expiration date in moderately Bearish markets.
Entry Rules
Bearish expectations for the underlying asset.
Take in a net credit of at least $3 for a $5 spread, and $6 for a $10 spread, after commissions.
Exit Rules
- Buy back position if it rises to 135% of purchase price.
- Evaluate position at 90-100% profit.
If you are still Bearish, buy back 50% of position to take your money off the table.
Buy back the remaining position if it moves back to your original purchase price.
Otherwise, let the options expire to keep all or part of the remaining credit you collected.
Profit & Loss Calculations
Maximum Risk – Limited to difference in strike prices – net credit received
Maximum Profit – Limited to net credit received
Breakeven – Lower Call strike price + net credit received
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