Bear Call Spread Options Strategy: Defined-Risk Bearish Trade

Level: Intermediate
Bear Call Spread Options Strategy: Defined-Risk Bearish Trade

The Bear Call Spread is a moderately bearish options strategy where you sell a Call at a lower strike and buy another Call at a higher strike. It generates limited income if the market stays below the short strike, while risk is capped by the higher strike Call.

Bear Call Spread Options Strategy: Defined-Risk Bearish Trade

The Bear Call Spread is a credit spread strategy used when traders have a moderately bearish outlook on the market. It involves selling a Call option at a lower strike and buying another Call option at a higher strike (same expiry). This creates a defined-risk trade that earns income if the underlying stays below the short Call strike.

  • Max Profit: Net premium received.
  • Max Loss: Difference in strikes – premium received.
  • Market View: Moderately bearish to range-bound.
Think of a Bear Call Spread as "renting out" a Call option but buying protection to cap risk. You collect some premium income, but your losses are limited if the market rallies unexpectedly.

When to Use a Bear Call Spread

  • You expect the market to stay below a certain level (resistance).
  • You want income from premium decay with limited risk.
  • Best used when volatility is high and expected to drop.

Setup Checklist

  • Underlying: NIFTY, BankNIFTY, or liquid stocks.
  • Strike Selection: Sell ATM/OTM Call, Buy further OTM Call.
  • Expiry: Near-term for faster time decay benefits.
  • Risk: Limited due to hedge.

Entry Rules

  1. Sell 1 Call at a lower strike (closer to spot).
  2. Buy 1 Call at a higher strike (further OTM).
  3. Net credit received = maximum profit.

Example: NIFTY Bear Call Spread

Assume NIFTY is at 20,000 and expiry is 26th September 2025:

  • Sell 20,200 CE @ ₹120
  • Buy 20,400 CE @ ₹60

Net Premium Received: ₹60 × 75 = ₹4,500 (Max Profit)

Max Loss: (20,400 – 20,200 – 60) × 75 = –₹10,500

Breakeven Point:

  • 20,200 + 60 = 20,260

Payoff at Expiry:

  • If NIFTY closes at or below 20,200 → Max Profit = ₹4,500.
  • If NIFTY closes at 20,260 → No Profit, No Loss.
  • If NIFTY closes above 20,400 → Max Loss = –₹10,500.
Bear Call Spread payoff chart showing capped profit and limited loss

Risk & Management

  • Max Profit: Premium received.
  • Max Loss: Difference in strikes – premium received.
  • Theta: Positive — time decay helps.
  • Vega: Negative — falling volatility helps.

Exit Rules

  • Exit if market stays flat and premiums decay (book profit).
  • Exit early if NIFTY starts rallying towards higher strike.
  • Close before expiry if volatility unexpectedly rises.

Advantages

  • Defined risk, no unlimited losses.
  • Profits from time decay and range-bound markets.
  • Requires less margin than naked Call selling.

Disadvantages

  • Profit is capped at the premium received.
  • Risk/reward can be unfavorable if strikes are chosen poorly.
  • Still loses if market rallies strongly.

Comparison: Bear Call Spread vs Short Call

Factor Bear Call Spread Naked Short Call
Risk Limited Unlimited
Profit Potential Limited (credit received) Limited (premium received)
Margin Requirement Lower High
Best Use Case Moderately bearish, defined-risk play Experienced traders with high risk capacity
Tip: The Bear Call Spread is ideal when you want to bet against a market rally but keep risk defined. It’s safer than naked Call selling and works well in moderately bearish or sideways markets.

The Bear Call Spread is a reliable defined-risk strategy for moderately bearish traders. It is popular among NIFTY and Bank NIFTY traders who want income from time decay while avoiding the unlimited risk of naked option selling.