What is a Bear Call Spread? Definition, Formula, and Example
A bear call spread is a bearish options strategy that sells a call at a lower strike and buys a call at a higher strike with the same expiration, collecting a net credit with defined risk.
Bear Call Spread Definition
A bear call spread, also called a call credit spread or short call spread, is a bearish options strategy constructed by selling a call option at one strike and buying a call option at a higher strike with the same expiration. The short call carries more premium than the long call, so the trader receives a net credit at entry. The position profits when the underlying stays below the short strike through expiration. Both maximum profit and maximum loss are fixed when the trade is placed, which makes it a defined-risk alternative to the unlimited-risk short call.
How the Bear Call Spread Is Calculated
The position has two legs:
- Short call at strike A (lower strike)
- Long call at strike B (higher strike), same expiration
Key formulas:
- Net credit received = premium of short call − premium of long call
- Maximum profit = net credit (realized if the stock closes at or below strike A at expiration)
- Maximum loss = (strike B − strike A) − net credit (realized if the stock closes at or above strike B)
- Break-even = strike A + net credit
The position is short delta and long theta at entry. It gains from time decay, falling prices, and contracting implied volatility.
Worked Example
Suppose TSLA trades at $250 and a trader believes it will stay below $260 over the next 30 days. The trader builds a bear call spread:
- Sell the $260 call for $5.10
- Buy the $265 call for $3.40
Net credit = $5.10 − $3.40 = $1.70 per share, or $170 per contract.
- Maximum profit: $170 if TSLA closes at or below $260 at expiration. Both calls expire worthless.
- Maximum loss: ($265 − $260) − $1.70 = $3.30 per share, or $330 per contract, if TSLA closes at or above $265.
- Break-even: $260 + $1.70 = $261.70.
The trader risks $330 to make $170. The position wins even if TSLA rises modestly, as long as it closes below $260, which is why call credit spreads are described as strategies that profit from being "not wrong" rather than needing to be precisely right.
When Traders Use It
Bear call spreads are the standard tool for selling premium against resistance. Traders place the short strike above a technical ceiling, a call wall, or a heavily traded strike with large open interest. The strategy is also used to fade overextended rallies, to hedge long portfolios during weak tapes, and to harvest inflated call premiums when implied volatility is elevated relative to realized movement. Because the long call caps the loss, the spread uses a fraction of the margin a naked short call demands. Traders sourcing candidates look for stretched names running into resistance with rich call premiums, which you can surface on the live scanner.
Limitations and Common Misconceptions
The defining tradeoff is asymmetric payout: the spread wins often but loses more than it wins when the short strike is breached. A runaway rally through both strikes produces the maximum loss, and gap risk means the position can move from safe to max loss overnight with no chance to adjust. A second misconception is that the long call makes assignment harmless. Early assignment on the short call, particularly before an ex-dividend date when the call trades near parity, leaves the trader short stock with a long call as the only hedge, which changes margin and risk. Third, the capped profit means a correct bearish call on a collapsing stock earns only the initial credit; traders expecting a large decline are better served by bear put spreads or long puts, which pay more when the move is large.