Stock Market · Option Strategies

Bear call spread

The bear call spread is a bearish credit spread. You sell a call at a lower strike and buy a call at a higher strike, collecting net premium.

Construction

Example: Nifty at 22,000, you're bearish.

• Sell 22,200 call @ ₹150 (collect premium)
• Buy 22,500 call @ ₹60 (hedge against sharp rally)
• Net credit: ₹150 − ₹60 = ₹90

Payoff

• Maximum profit: ₹90 × 75 = ₹6,750 (if Nifty stays below 22,200)
• Maximum loss: (22,500 − 22,200) − 90 = ₹210 × 75 = ₹15,750
• Breakeven: 22,200 + 90 = 22,290

> You profit when Nifty stays below 22,290 at expiry. A sharp rally above 22,500 hits max loss.

When to use

• You're moderately bearish or expect a range-bound market.
• High IV environments. Elevated IV means fatter premium collected.
• Near resistance zones where the market has repeatedly failed to break through.

Key difference from naked short call

A naked short call has unlimited loss if markets spike. The bear call spread caps your loss at the spread width minus credit. The bought call is your insurance against a short squeeze or news-driven gap up.

Bear call spreadlimited loss, limited gain, bearish or neutral

Naked short calllarge loss potential, bearish

Takeaway. Bear call spread: sell the lower call, buy the higher one. Premium arrives upfront and the position profits if the market stays below the short strike. The bought call is what converts an unbounded loss into a known one. The premium you give up for it is the price of that ceiling.