A bear call spread is best used when you are moderately bearish on a stock or index and want to profit from either a sideways market or a slight decline in the underlying price. It is a defined-risk strategy that generates income through premium collection.
What Is a Bear Call Spread
A bear call spread, also known as a short call spread, is an options strategy that involves:
Selling a call option at a lower strike price
Buying a call option at a higher strike price
Both options must be on the same underlying, have the same expiry date, and be of the same type (calls)
This results in a net credit, and the strategy is profitable if the stock remains below the short strike until expiry. The goal is to allow both options to expire worthless, letting you retain the premium received.
When Is a Bear Call Spread Appropriate
Use this strategy when:
You expect the price of the underlying to stay below a resistance level
You believe the stock or index will remain range-bound or fall slightly
You want to generate income through time decay (theta)
You prefer a defined risk and defined reward setup
It is especially useful after a stock has rallied and is showing signs of exhaustion or consolidation.
How Does a Bear Call Spread Work
Let’s say Stock XYZ is trading at ₹100.
You implement the following spread:
Sell ₹105 Call @ ₹6
Buy ₹115 Call @ ₹2
Net Credit Received = ₹6 – ₹2 = ₹4
Now examine potential outcomes at expiry:
Stock Price at Expiry
₹105 Call
₹115 Call
Net P/L
₹100 or below
0
0
₹4 (maximum profit)
₹110
–₹5
0
–₹1 (partial loss)
₹115 or above
–₹10
0
–₹6 (maximum loss)
Maximum profit = ₹4 when the stock remains below ₹105
Maximum loss = (Strike difference – Premium received) = 10 – 4 = ₹6
Why Use a Bear Call Spread Instead of Selling a Naked Call
Selling a naked call carries unlimited risk if the underlying rises sharply
A bear call spread reduces this risk by purchasing a higher strike call as protection
This caps the loss and turns a high-risk trade into a risk-defined strategy
Makes it more suitable for retail and conservative traders
What Market Conditions Favour a Bear Call Spread
The market or stock is trading near a resistance zone
You expect no major upside catalysts
Volatility is high and may contract
You want to earn income with limited risk
There is limited time until expiry, increasing time decay benefits
What Are the Characteristics of a Bear Call Spread
Feature
Description
Market View
Neutral to moderately bearish
Net Premium
Collected upfront (credit strategy)
Maximum Profit
Premium received
Maximum Loss
Strike width – premium received
Time Decay Benefit
Yes (theta positive)
Risk Profile
Defined and limited
Breakeven Point
Short strike + net premium
Best Result
Price stays below the short strike at expiry
Key Takeaways
A bear call spread is ideal when you expect the underlying to remain below a certain level or decline slightly
It is a net credit strategy that profits when both options expire worthless
Maximum profit is the premium received, and maximum loss is the strike width minus premium
It is safer than selling a naked call, which has unlimited loss potential
Best suited for sideways or slightly bearish markets, especially when volatility is high and expected to decline