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Bear call Spread Strategy

Strategy Type:

Bear Call Spread is a moderately bearish strategy. It is used when an investor expects the underlying asset's price to decrease but not significantly.

Components: The strategy involves two main components:

  • Long Call Options: The investor sells (writes) a call option with a specific strike price. This option gives the investor an obligation to sell the underlying asset at the strike price if the option is exercised by the option buyer.
  • Short Call Option: Simultaneously, the investor buys a call option with a higher strike price. This option provides protection and limits potential losses.

Profit and Loss Potential:

  • Maximum Profit: The maximum profit is limited to the net premium received when selling the call minus the premium paid for the long call.
  • Maximum Loss: The maximum loss is limited to the difference between the strike prices of the two call options minus the net premium received.
Break-Even Point: The break-even point is the strike price of the short call plus the net premium received.

Strategy Goals:

  • The primary goal of a Bear Call Spread is to profit from a moderate price decrease in the underlying asset.
  • The strategy is designed to limit risk compared to simply selling a call option by providing upside protection through the long call.

Risk Management:

  • The risk is limited to the difference in strike prices minus the net premium received.
  • The strategy is suitable for investors who expect moderate bearishness and want to control risk.