## What is Bear Call Spread?

The bear call spread option trading strategy is applied when the options trader assumes that the price of the underlying asset will fall down slightly in the near term.

Bear call spread can be achieved by buying out the money call options of a specific strike price and selling the same number of in the money call options of lower strike price on the same underlying security expiring in the same month.

## Profit in the bear call spread

The stock price needs to close below the strike price of the lower striking call sold at the expiration date where both options would expire worthlessly to reach the maximum profit.

You can calculate the maximum profit in the bear call spread by using the formula below

• Maximum Profit obtained When Price of Underlying <= Strike Price of Short Call

## Risk in the bear call spread

The bear call spread strategy bears a maximum loss if the stock price moves above the strike price of the higher strike call at the expiration date.

It is equal to the difference in strike price between the two options minus the net premium taken in when entering the position.

You can calculate the maximum loss in the bear call spread strategy by using the formula below

• Maximum Loss in the bear call spread = Strike Price of Long Call – Strike Price of Short Call-Net Premium Received + Commissions Paid
• Maximum Loss happens When Price of Underlying >= Strike Price of Long Call

## Breakeven Point for the bear call spread

The price at which break-even is obtained for the bear call spread position can be calculated by using the formula below.

• Breakeven Point for the bear call spread= Strike Price of Short Call + Net Premium Received.

The margin requirement is the difference between the strike prices.

## How to make Bear Call Spread Strategy?

Using Options strategy builder in intradayscreener.com, you can easily build an option strategy for a bear call spread.

Step 1: You just need to select the indices and expiry date (one sell call option and one buy call option) and click on add/edit to get started.

Step 2: Click on the Bear call spread strategy below.

Step 3: You will get detailed information on the option strategy like Premium, Max profit at expiry, Max losses at expiry, Breakeven at expiry, and a Bear call spread graph.

## Bear Call Spread – Example

Let us take an example of Tata motors with the strike price of 325, sell a call option, and buy a call option given in the table below

In bear call spread, you need to sell one In-the-money call option which is 325  and the premium received is 23.55 and buy one out-the-money call option which is at 335 with a premium paid is 19.2.

By using the above calculation in the table, we can plot the payoff diagram for the bear call spread.