Bear Call Spread
Bear Call Spread Strategy
The Bear Call Spread is a bearish options strategy that allows traders to profit when the underlying asset’s price remains steady or declines slightly. It offers low cost and decent profits if the price stays at a certain level or falls, making it an attractive alternative to more expensive bearish setups.
How the Bear Call Spread Works
This strategy is created by combining two positions:
Sell one ATM Call Option (strike price = current market price).
Buy one OTM Call Option (strike price = above the current market price).
Selling the ATM call provides immediate premium income, while buying the OTM call limits risk if the asset price rises significantly.
Cost: Low, since the strategy starts with a net credit (you receive premium).
Profit: Capped at the net credit collected.
Risk: Limited to the difference between strike prices minus the net premium.
Buying one Bear Call Spread is equal to selling an ATM Call and simultaneously buying an OTM Call with a higher strike price.
Nexo Options provides two variations of this strategy:
Narrow Range: Smaller difference between strikes, lower risk and lower reward.
Wide Range: Larger difference between strikes, higher risk and higher reward.
Profit Zone
The Bear Call Spread generates profit if the asset price:
Falls below the ATM strike, or
Remains stable at or near current levels.
The strategy is immediately profitable upon entry since the trader collects premium upfront.
Example with ETH
Suppose ETH is trading at $4,200.
Sell: 1 ATM Call Option at strike = $4,200.
Buy: 1 OTM Call Option at strike = $4,600.
Scenario 1: ETH stays at $4,200 or falls lower
Both calls expire worthless.
Trader keeps the premium collected.
Net result: Maximum profit achieved.
Scenario 2: ETH rises moderately to $4,400
The ATM call incurs a loss.
The OTM call limits further downside risk.
Net result: Partial loss, smaller than selling a naked call.
Scenario 3: ETH rises above $4,600
Both calls are in-the-money.
Loss is capped at the difference between strikes ($4,600 – $4,200 = $400), minus the premium received.
Net result: Maximum loss limited.
Why Use the Bear Call Spread on Nexo Options?
Immediate Profit Potential: Premium is collected upfront, so you start in profit if the market doesn’t rally.
Defined Risk/Reward: Maximum gain and loss are both predetermined.
Efficient for Sideways or Bearish Outlooks: Ideal when expecting prices to remain flat or decline slightly.
Customizable: Narrow vs. Wide ranges let traders adjust between conservative and aggressive risk profiles.
Important Notes
The Bear Call Spread is an inverse strategy, meaning it involves option writing.
Because of this structure, it cannot be exercised before expiry; P&L is distributed automatically at expiration.
The Bear Call Spread is a smart choice for traders with a neutral-to-bearish outlook, seeking steady returns with limited exposure to market rallies.
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