← Strategy LabLesson 20 · 4:18
Bear call spread
Summary
Use a bear call spread when you expect XYZ to stay at $100 or fall and you want to be paid first. You sell the $100 call for $345 and buy the $105 call for $158, so you collect $187, which is the most you can make. The most you can lose is $313, at $105 or above, and you break even at $101.87.
Key terms
- bear call spread
- You sell a call and buy another call with a higher strike and the same expiry, collecting cash and betting the stock does not rise.
- credit spread
- A spread that pays you to open it.
- margin
- Money your broker holds against what a sold position could lose.
- T plus zero line
- The blue line on the chart showing your result today, if you closed the trade right now.
- time value
- The rest of an option's price, paid for the chance things get better before the end, and gone by the last day.
- break-even
- The stock price on the last day where you neither make nor lose money: strike plus premium for a call, strike minus premium for a put.
Check yourself
Answer each question to see why the right answer is right.
1. How much cash do you collect when you open this bear call spread?
2. Where do you break even on the last day?
3. XYZ ends at $110 on the last day. What is your result?
4. XYZ ends at $90 on the last day. What is your result?
5. Without the bought $105 call, as with the short call in lesson three, what would the loss above be?
Finished the video and the quiz? .