Elearnmarkets - Financial Market Learning
  • Courses
  • Webinars
  • Stories
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
Get Free Course
  • Basic Finance
  • Derivatives
    • Futures
    • Options
  • Financial Planning
  • Fundamental Analysis
  • Technical Analysis
  • Mutual Funds
  • Marketshala
  • Miscellaneous
Elearnmarkets - Learn Stock Market, trading, investing for Free
  • Courses
  • Webinars
  • Stories
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
Get Free Course
Elearnmarkets - Learn Stock Market, trading, investing for Free
No Result
View All Result
Home Derivatives
Understanding Bear Call Spread Strategy 1

Understanding Bear Call Spread Strategy

Vivek Bajaj by Vivek Bajaj
February 25, 2025
in Derivatives
Reading Time: 7 mins read
0
2.9k
VIEWS
Share on FacebookShare on XShare on WhatsApp

A bear call spread strategy is a two-part options strategy that includes selling a call option and receiving an upfront option premium, then buying a second call option with the same expiration date but a higher strike price. One of the four fundamental vertical option spreads is the bear call spread.

The amount of option premium is smaller because the strike of the call sold (i.e. the short call leg) is lower than the strike of the call purchased (i.e. the long call leg).

So, in today’s blog, let us discuss the Bear Call Spread Strategy:

Table Of Contents
  1. What is Bear Call Spread Strategy?
  2. How does Bear Call Spread Strategy work?
    • 1. Outlook
    • 2. Strategy
    • 3. Maximum lossrisk
    • 5. Breakeven stock price at expiration
    • 6. Payoff Diagram
  3. Bottomline
  4. Frequently Asked Questions (FAQs)
  5. What is a Bear Call Spread?
  6. How does a Bear Call Spread work?
  7. What is the maximum profit and loss potential of a Bear Call Spread?

What is Bear Call Spread Strategy?

Buying a Call Option and selling a Call Option with a lower strike price on the same underlying asset and expiry date is referred to as a Bear Call Spread Strategy. 

When you sell a Call Option, you get paid a premium; when you buy a Call Option, you pay a premium. As a result, your investment cost is substantially lower. In addition, because the return is limited to the difference between the premium received and paid, the technique is less risky.

This approach is applied when a trader feels the underlying asset price will fall moderately. Because a net credit is received upon joining the trade, this method is known as the bear call credit spread.

The strategy’s risk and profit are both limited.

How does Bear Call Spread Strategy work?

Let us take the stock example so that we can understand this strategy better-

Index Example- Nifty50 – 13.6.2022

1. Outlook

We were bearish on the Nifty 50 index due to global factors such as US Inflation and the rising dollar. Also, the Nifty 50 opened gapped down due to global factors. Below is the chart of the Nifty 50:

 Bear Call Spread Strategy

2. Strategy

To implement the bear call spread –

  • Buy 1 OTM Call option (leg 1)
  • Sell 1 ITM Call option (leg 2)

One should ensure that-

  • All strikes belong to the same underlying
  • Belong to the same expiry series
  • Each leg involves the same number of options
  • Let us take up an example to understand this better –

Outlook – Moderately bearish

Nifty Spot – 15800

Bear Call Spread, trade set up –

  • Buy 15900 CE by paying Rs.239.05 – as a premium; do note this is an OTM option. This is a debit transaction since money is going out of my account.
  • Sell 15700 CE and receive Rs.343.95- as a premium, do note this is an ITM option. Since I receive money, this is a credit transaction.

Suppose the stock price is at or below the short call’s strike price (lower strike) at expiration and both options expire worthlessly. In that case, the potential profit is restricted to the net premium collected less commissions.

3. Maximum loss\risk

The maximum risk is the difference between the strike prices minus the net credit received, including commissions. In the example above, the difference between the strike prices is 200 (15900 – 15700 = 200), and the net credit is 104.9 (343.95 – 239.05 = 104.9).

Therefore, the maximum risk is 95.1(200-104.9) per share less commissions. This maximum risk is realized if the stock price is at or above the long call’s strike price at expiration.

Short calls are generally assigned at expiration when the stock price is above the strike price.

5. Breakeven stock price at expiration

The strike price of short call (lower strike) plus net premium received.

In this example: 15700+ 104.9 = 15804.9

6. Payoff Diagram

Below is the Payoff diagram of the above strategy:

Understanding Bear Call Spread Strategy 2

Before we conclude, we would like to show you how our last strategy- Bull Put Spread Strategy did that we implemented on Oil and National Gas Corporation Ltd.:

Understanding Bear Call Spread Strategy 3

Bottomline

Finally, traders can profit from mild falls or neutral price movements in the underlying asset by using the Bear Call Spread technique. Traders restrict potential losses while creating a net credit by selling a call option with a lower strike price and simultaneously purchasing a call option with a higher strike price. The technique has little risk, but its maximum reward is capped at the original credit obtained. Setting suitable exit points, controlling risk, and comprehending market conditions are essential for a successful implementation. The Bear Call Spread strategy offers traders looking to generate revenue in particular market conditions a methodical way to go.

Frequently Asked Questions (FAQs)

What is a Bear Call Spread?

An options trading method used by investors who predict a drop in a security’s price is known as a bear call spread. It is the act of simultaneously purchasing a call option with a higher strike price and selling a call option with a lower strike price, both of which have the same expiration date.

How does a Bear Call Spread work?

When the underlying security’s price stays below the sold call option’s strike price until it expires, the strategy makes money. In the event that the value of the underlying asset unexpectedly increases, the acquired call option reduces possible losses.

What is the maximum profit and loss potential of a Bear Call Spread?

The net premium collected from selling the call option less the premium spent to purchase it sets the maximum profit. The difference between the strike prices less the net premium obtained is the maximum loss that can occur.

You can also visit web.stockedge.com, a unique platform that is 100% focused on research and analytics.

Tags: advanceBear Call Spread Strategyenglishoptions strategiesoptions trading strategies
ShareTweetSend
Get Kotak Offer Get Kotak Offer Get Kotak Offer
Previous Post

Moving Average Indicator – a technical tool for traders

Next Post

7 Best Bearish Options Strategies 

Vivek Bajaj

Vivek Bajaj

Mr. Vivek Bajaj has over 18 years of trading experience in equities, options, currencies, and commodity markets. He is the co-founder of Stockedge and Elearnmarkets and is passionate about data, analytics, and technology. He serves on various exchange committees and has played a significant role in the evolution of India's derivative market. He has been a speaker at various colleges and higher institutions, including IIT and IIMs.

Related Posts

Forex vs Stocks
Miscellaneous

Forex vs Stocks: Which Market Should You Trade First

May 13, 2025
244
Collar Option Strategy
Options

How to Use Collar Option Strategy?

May 2, 2025
485
Futures vs Options
Derivatives

Futures vs Options: What’s the Difference?

December 26, 2024
864
Scalping Trading Strategies
Options

Top 5 Scalping Trading Strategies For Higher Return

May 5, 2025
4.5k

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Disclaimer

Elearnmarkets (Kredent InfoEdge Pvt. Ltd.) is a SEBI-registered Research Analyst (RA) entity (SEBI Registration No.: INH300007493). The information provided in this article is for educational and informational purposes only and should not be considered as an offer to buy or sell any securities or investment products.

The stocks, securities, and investment instruments mentioned herein are not recommendations under SEBI (Research Analysts) Regulations, 2014. Readers are advised to conduct their own due diligence and seek independent financial advice before making any investment decisions.

Investments in securities markets are subject to market risks. Please read all related documents carefully before investing. Investing in Equity Shares,
Derivatives, Mutual Funds, or other instruments carry inherent risks, including potential loss of capital. Elearnmarkets (Kredent InfoEdge Pvt. Ltd.) does not provide any guarantee or assurance of returns on any investments. Past performance is not indicative of future performance.

Elearnmarkets Logo

Follow Us

Facebook-f X-twitter Instagram Linkedin-in Youtube Telegram

Register on Elearnmarkets

Continue your financial learning by creating your own account on Elearnmarkets.com

Register Free Account

Download App

Playstore logo
Download on app store

Categories

  • Basic Finance
  • Derivatives
  • Financial Planning
  • Fundamental Analysis
  • Technical Analysis
  • Mutual Funds
  • Miscellaneous

Popular On Elearnmarkets

  • Market Superheroes:
  • Vivek Bajaj
  • Chetan Panchamia
  • Ashish Kyal
  • Premal Parekh
  • Abhijit Paul
  • Jegan
  • Sivakumar Jayachadran
  • Jyoti Budhia
  • Vivek Gadodia
  • Vishal Mehta
  • Piyush Chaudhry
  • Santosh Pasi
  • Gomathi Shankar
  • Market Superheroes:
  • Vivek Bajaj
  • Chetan Panchamia
  • Ashish Kyal
  • Premal Parekh
  • Abhijit Paul
  • Jegan
  • Sivakumar Jayachadran
  • Jyoti Budhia
  • Vivek Gadodia
  • Vishal Mehta
  • Piyush Chaudhry
  • Santosh Pasi
  • Gomathi Shankar
  • Courses:​
  • Options Trading
  • Dow Theory
  • Momentum Trading
  • Stock Investing
  • Harmonic Chart Patterns
  • Algo Trading
  • Elliot Wave Theory
  • Advanced Excel
  • Cryptocurrency
  • NSE Certification Course
  • Courses:​
  • Options Trading
  • Dow Theory
  • Momentum Trading
  • Stock Investing
  • Harmonic Chart Patterns
  • Algo Trading
  • Elliot Wave Theory
  • Advanced Excel
  • Cryptocurrency
  • NSE Certification Course
  • Webinars:
  • Bank Nifty Scalping
  • Intraday Trading Strategies
  • Options Trading Strategies
  • Options selling
  • Price Action
  • Relative Strength
  • Tax Planning
  • Options Buying
  • Growth Stocks
  • Portfolio Management
  • Risk Management
  • Renko Charts
  • Crude Oil
  • Traders Psychology
  • Moving Average
  • Multibagger Stocks
  • Webinars:
  • Bank Nifty Scalping
  • Intraday Trading Strategies
  • Options Trading Strategies
  • Options selling
  • Price Action
  • Relative Strength
  • Tax Planning
  • Options Buying
  • Growth Stocks
  • Portfolio Management
  • Risk Management
  • Renko Charts
  • Crude Oil
  • Traders Psychology
  • Moving Average
  • Multibagger Stocks
  • Free Learning Modules:
  • Intraday Trading
  • Options Scalping
  • Swing Trading
  • Financial Modelling
  • RSI Indicator
  • Bollinger Bands
  • Pricing of Futures
  • Personal Finance
  • Initial Public Offerings (IPO)
  • Value Investing
  • Technical Indicators
  • Candlesticks
  • Chart Patterns
  • Option Greeks
  • ELSS Funds
  • Banking and Insurance
  • Real Estate
  • Gold
  • Free Learning Modules:
  • Intraday Trading
  • Options Scalping
  • Swing Trading
  • Financial Modelling
  • RSI Indicator
  • Bollinger Bands
  • Pricing of Futures
  • Personal Finance
  • Initial Public Offerings (IPO)
  • Value Investing
  • Technical Indicators
  • Candlesticks
  • Chart Patterns
  • Option Greeks
  • ELSS Funds
  • Banking and Insurance
  • Real Estate
  • Gold
  • Book Summaries:
  • Rich Dad Poor Dad
  • Psychology of Money
  • The Intelligent Investor
  • The Richest Man in Babylon
  • Think and Trade Like a Champion
  • Value Investing and Behavioural Finance
  • Trading in the Zone
  • Learn to Earn
  • Book Summaries:
  • Rich Dad Poor Dad
  • Psychology of Money
  • The Intelligent Investor
  • The Richest Man in Babylon
  • Think and Trade Like a Champion
  • Value Investing and Behavioural Finance
  • Trading in the Zone
  • Learn to Earn
  • Tools:
  • CAGR Calculator
  • SIP Calculator
  • eLearnOptions
  • Future Value Calculator
  • Present Value Calculator
  • Atal Pension Yojana
  • Cost of Delay Calculator
  • Become a Crorepati
  • Tools:
  • CAGR Calculator
  • SIP Calculator
  • eLearnOptions
  • Future Value Calculator
  • Present Value Calculator
  • Atal Pension Yojana
  • Cost of Delay Calculator
  • Become a Crorepati

© 2025 Elearnmarkets. All Rights Reserved

  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling
  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling

Download Our App

No Result
View All Result
  • Article Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • ETFs & Mutual Funds
    • Marketshala
    • Miscellaneous
  • Language
    • Hindi
    • Bengali
    • English
  • Courses
  • Webinars
  • Stories
Get Free Course

© 2024 Elearnmarkets All Rights Reserved

Guide to Options Strategies
Discover Options Strategies For Making Money In All Market Conditions
Download Guide For FREE
How to Spot False Dips and Trade with Confidence