Bear Call Spreads

One of the more popular options trading strategy is the bear call spread, a credit spread that has limited reward, but also low risk. It falls in the bearish category of trading techniques that are used by BetterTrades students.

Once an investor finds a stock that is trending down, they will sell a call option at the next strike price above resistance and buy a call option at the next strike price above that.

For example, we find a stock that's trading at $48, has hit resistance and is moving down. To implement the bear call spread, you would sell the $50 call for $5, a move that would bring in $500 in premium. The next step would be to buy the $55 call for $2, which would cost $200. That leaves us ahead by $300.

If the stock rises in value, you could lose no more than $200. The credit you received for selling the call ($300) would offset the $500 loss, arrived at by taking the difference of the $55 and $50 strike prices. That would limit losses to $200 per contract.

The profits are also capped at $300. It doesn't matter how much movement exists. You are locked in at a $300 gain.

By using this strategy, you're settling for a lower potential profit in exchange for a conservative strategy that limits potential losses.

There are many options trading strategies available to BetterTrades students. Under the system developed by Freddie Rick there are strategies that can work under various market conditions. There are covered calls and bull put spreads for bullish market; iron condors and calendar spreads for a neutral market; and bear put spreads and bear call spreads for bearish markets. At BetterTrades, you can find a wealth of strategies that can fit your trading needs.

Bear Call Spreads | Bear Put Spreads | Calendar Spreads | Covered Calls | Iron Condors