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Glossary

Bear Call Spread

A bear call spread is an options strategy that sells a lower-strike call and buys a higher-strike call with the same expiration, collecting a net credit.

What Is a Bear Call Spread?

A bear call spread is an options spread that combines two call option contracts on the same stock or index with the same expiration date. The investor sells a call with a lower strike price and buys a call with a higher strike price. Because the sold call is worth more than the bought call, the trade brings in a net payment, called a credit, when it is opened. Investors typically use this strategy when they expect the price of the underlying asset to stay flat or fall.

How It Works

The premium received from the sold call is partly offset by the cost of the purchased call. The higher-strike call limits the risk: if the stock rises sharply, losses on the sold call are capped rather than unlimited.

The result depends on where the underlying price sits at expiration:

  • Below the lower strike: both calls expire worthless, and the investor keeps the full credit, which is the maximum profit.
  • Between the two strikes: the sold call gains value and reduces the profit as the price rises toward the lower strike.
  • Above the higher strike: the spread reaches its maximum loss.

Maximum profit equals the net credit received. Maximum loss equals the difference between the two strike prices minus the credit. The breakeven point is the lower strike plus the credit.

Example

Suppose a stock trades at 50. An investor sells a call with a strike of 55 for a premium of 2.00 per share and buys a call with a strike of 60 for a premium of 0.75 per share. The net credit is 1.25 per share, or 125 for a standard contract covering 100 shares. Maximum profit is 125. Maximum loss is the 5-point width minus the 1.25 credit, or 3.75 per share (375 per contract). The breakeven point is 56.25. This example is hypothetical and uses illustrative prices.

Advantages and Risks

The strategy has a defined maximum profit and maximum loss, and it can benefit from time decay and falling implied volatility. Its drawbacks include a limited profit relative to the risk taken, the possibility of early assignment on the short call (especially near dividend dates), and the need for the stock to stay below a certain level to earn a profit. Brokers also require margin, meaning collateral equal to the spread width minus the credit, to be held in the account.

Updated November 10, 2026. For general education only; not financial, tax or legal advice.

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Related Terms

Call Option

A call option is a contract that gives its buyer the right, but not the obligation, to buy a specified quantity of an underlying asset at a set price before or on a set expiration date.

Expiration Date

The expiration date is the last day on which a derivative contract, such as an option or futures contract, remains valid and can be exercised, after which it becomes void.

Strike Price

The strike price is the fixed price at which the holder of an option can buy or sell the underlying asset, such as a stock, when the option is exercised.

Time Decay

Time decay is the gradual loss of an option's time-based value as its expiration date gets closer, all else being equal, so the contract becomes less valuable over time.

Implied Volatility (IV)

Implied volatility is the level of future price movement that the market expects for an asset, inferred backward from the current market price of its options.

Assignment

In options trading, assignment is the notification that an option seller must fulfill the contract, by delivering or buying shares, after the option buyer chooses to exercise.

Vertical Spread

A vertical spread is an options strategy that pairs a bought and a sold option of the same type, with the same expiration but different strike prices, capping both potential gain and loss.

Credit Spread

A credit spread is an options strategy that involves selling one option and buying a cheaper one on the same underlying, receiving a net credit upfront; the term also describes bond yield gaps.