Bear Call Spread: how the position works

Sell a call and buy a higher-strike call above it. You keep the credit as long as the underlying stays below the short strike, and the long call bounds the loss if it does not. It is the credit-financed bearish counterpart to the bull put spread, and it is what turns an unbounded short-call risk into a number you can size.

Market view: Bearish to neutral — income
Opened for: Credit
Maximum profit: The net credit received. Kept in full at or below the short strike at expiry.
Maximum loss: (K₂ − K₁) − net credit. Reached at or above the long strike at expiry.
Breakeven: K₁ + net credit, at expiry.

How it is built

Sell 1 call at the lower strike K₁
Buy 1 call at the higher strike K₂, same expiry

All figures above are quoted per share and settle at expiry. A standard equity option covers 100 shares, so multiply by 100 for a single contract.

Before expiry: the Greeks

Net short delta and short vega. Positive theta, which again is the point. Negative gamma above the short strike, and the asymmetry is worth naming: upside gaps in individual equities — a takeover bid, a surprise result — are the classic way a modest credit becomes the full width of the spread overnight, with no opportunity to manage in between.

When to use it

When you expect a level to cap the underlying and implied volatility is rich enough to pay for the risk. It sits naturally above resistance or above a strike you consider unreachable in the time remaining. Because upside call skew is usually flatter than downside put skew in equity indices, the credit here tends to be thinner than the mirror-image put spread — compare both before choosing.

What goes wrong

Takeover and gap risk. This is the structure most exposed to a single overnight headline, because the loss is realised in the direction that news arrives fastest.
Early assignment before an ex-dividend date. A short in-the-money call is frequently assigned by holders capturing the dividend, leaving you short stock and liable for it.
Negative gamma into expiry, where the position moves against you faster than the remaining credit compensates.

A worked example

NVDA at 175. Sell the 185 call and buy the 195 call, 30 days out, for a net 2.35 credit.

Net credit received: $2.35 per share — $235 for one contract
Width of the spread: $10.00 (195 − 185)
Maximum profit: $235, at or below 185
Maximum loss: $765 ((10 − 2.35) × 100), at or above 195
Breakeven at expiry: $187.35 (185 + 2.35)

Commissions, exchange fees, financing and the bid/ask spread are excluded. On a multi-leg position the spread is usually the largest of these.

Common questions

What if I am assigned on the short call?

You end up short 100 shares per contract at the strike. The long call still caps the loss above it, but you now carry a stock position with borrow costs and dividend liability. Exercising the long call closes it out; so does buying the shares back.

Related strategies

Educational only. This page explains how a structure behaves; it is not a recommendation to trade it. Options and futures carry substantial risk, and short and leveraged positions can lose more than the amount originally invested.