Options Strategies
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Bear Call Spread
Strategies |
Bear Call Spread |
Component |
Sell lower strike price/level call, buy higher strike price/level call of the same month |
Potential Profit |
- When the stock price/index level is below the break-even point
- Limited to the net premium received
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Maximum Loss |
The difference between the two strike prices/levels minus the net premium received |
Time Value Impact |
Neutral |
Break-even |
Lower strike price/level plus net premium received
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Remarks |
As different from a Bear Put Spread which would result in net premium paid, a Bear Call Spread results in net premium received, as the premium for the lower strike price/level call is higher than that of the higher strike price/level call. |
Example
Component |
Sell ABC Jan $190 Call, receive $30, and buy ABC Jan $220 Call, pay $10 |
Net Premium |
Receive $30-$10=$20 |
Break-even |
$190+$20=$210 |
Profit when |
Stock price is below $210 |
Potential Profit |
$20 |
Potential Loss |
($220-$190)-$20=$10 |
Time Value Impact |
Neutral |
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