Definition
Bear Call Spread
A bear call spread sells a lower-strike call and buys a higher-strike call to earn premium with a mildly bearish view.
You sell a call near the money for premium and buy a higher-strike call as insurance. You profit if the underlying stays below the sold strike, keeping the net credit, while the long call caps losses if it rallies hard. It is the bearish credit cousin of the bull put spread.
On the NSE, traders use bear call spreads when they expect Nifty or a stock to stay capped below a resistance level. Because the long call defines the risk, SPAN margin is far lower than selling a naked call, making it a popular defined-risk income trade among Indian option writers.
Related terms
- Bull Call SpreadA bull call spread buys a lower-strike call and sells a higher-strike call to bet on a moderate rise at lower cost.
- Bull Put SpreadA bull put spread sells a higher-strike put and buys a lower-strike put to earn premium with a mildly bullish view.
- Iron CondorAn iron condor sells an out-of-the-money call spread and put spread to earn premium in a range-bound market with defined risk.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.