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What is a bear call spread?
Understand the defined-risk call credit spread for a view that the stock stays below a chosen strike
Prepared by Mark · Primary sources below
Direct answer
A bear call spread sells a call and buys another call with the same expiration at a higher strike. The position receives a net credit and generally benefits when the stock stays below the short call strike at expiration. The long call caps the loss if the stock rises, while the most the position can make is the initial credit
It favors a stock that stays below the short strike
The short call is the premium-producing leg. If the stock remains at or below that strike at expiration, both calls can expire without intrinsic value and the initial credit is retained
The higher-strike call defines the maximum loss
If the stock rises through both strikes, gains on the long call offset further losses on the short call. Maximum expiration loss is generally the strike width minus the net credit received
A credit does not make risk disappear
Short calls can be assigned, and an account may need to deliver or obtain shares depending on its position and broker rules. The defined payoff should be evaluated alongside liquidity, spreads, and the plan for expiration
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