Bear Call Spread: A Step-by-Step Guide for Options Traders

A bear call spread is a defined-risk options strategy where you sell a call option at one strike price and buy another call at a higher strike price, collecting a net credit. The trade profits when the stock stays below the short call strike at expiration. It is one of the most effective credit spreads for capitalizing on stocks that are overbought, losing momentum, or trading near resistance.

In options trading, success is not about predicting the future. It is about stacking probabilities in your favor. The bear call spread strategy allows traders to do exactly that: express a neutral to bearish outlook while defining risk, collecting premium upfront, and maintaining a favorable reward-to-risk ratio from a probability standpoint.

Whether you are building a consistent options income approach or refining an existing strategy, understanding how to set up a bear call spread, identify the right market conditions, and manage the position like a professional will give you a measurable edge.

What Is a Bear Call Spread and How Does It Work?

A bear call spread, also known as a short call vertical spread or credit call spread, consists of two simultaneous transactions: selling a call option at a lower strike price to collect premium, and buying a call option at a higher strike price to cap your risk.

This creates a net credit, meaning you receive money when opening the trade. The strategy generates a profit if the stock stays below the short call's strike price at expiration.

Your maximum profit is the net credit received. Your maximum loss is the difference between the two strike prices minus the net credit. Both outcomes are known before you enter the trade, which is what makes the bear call spread a defined-risk strategy.

Here is a simple bear call spread example. A stock is trading at $50. The expected move is plus or minus $4. You sell a $55 call for $2.00 and buy a $60 call for $0.50. Your net credit is $1.50, or $150 per contract. The most you can lose is $350 (the $5 spread width minus the $1.50 credit, times 100).

If the stock remains below $55 at expiration, both options expire worthless and you keep the full $150 credit. That is the ideal outcome.

Unlike outright shorting a stock, which exposes traders to unlimited losses, the bear call spread provides a controlled-risk approach to expressing a bearish view. You know your maximum loss, your breakeven, and your probability of profit before you place the order.

Why Do Professional Traders Favor the Bear Call Spread?

Professional options traders favor the bear call spread strategy for several reasons that separate it from more speculative approaches.

First, it is a credit strategy. You collect premium upfront rather than paying for an option and hoping it appreciates. Time works in your favor. Every day that passes without the stock breaching your short strike, theta decay erodes the value of the spread, moving it closer to worthless, which is your goal.

Second, the risk is defined and known. Unlike selling naked calls, where a sharp rally can produce catastrophic losses, the long call at the higher strike caps your maximum loss at the spread width minus the credit received.

Third, the bear call spread does not require the stock to fall. It profits from sideways action, modest declines, or even slight rallies, as long as the stock stays below the short strike. This gives the trade a wide range of profitable outcomes, which is why the bear call spread probability of profit often falls between 68% and 85% when structured correctly.

Fourth, it pairs naturally with other strategies. When combined with a bull put spread below the current price, you create an iron condor. This flexibility makes the bear call spread a building block for more complex income strategies.

When to Use a Bear Call Spread: The 4-Condition Entry Checklist

Successful traders do not rely on guesswork. They use quantitative analysis, historical price behavior, and probability-based decision-making to enter high-probability trades. When evaluating whether a bear call spread is a good setup, look for these four conditions to align.

Condition 1: Overbought RSI (Above 70 to 80)

The Relative Strength Index measures the speed and magnitude of price movements. An RSI reading above 70, and especially above 80, suggests the stock has risen too quickly and may be overextended. At these levels, the stock is more likely to face selling pressure or stall, making it an ideal time to sell call options at resistance.

Condition 2: Price at Key Resistance Levels

Professional traders pay close attention to historical resistance zones where a stock has struggled to move higher in the past. These levels act as psychological barriers for buyers, increasing the likelihood that price will pause or reverse rather than continue higher. Selling a bear call spread near resistance allows you to take advantage of natural price ceilings while collecting premium.

Condition 3: Elevated IV Rank (Above 50%)

Implied volatility measures market expectations for future price movement, and IV Rank compares current IV levels to their past range. When IV Rank is elevated, options premiums are inflated. This means you collect more credit for the same strike distance, improving your reward-to-risk ratio. Elevated IV Rank is one of the best conditions for bear call spread setups because the premium you collect provides a wider margin of error.

Condition 4: Declining Volume on Rallies

A rally on low or declining trading volume signals that fewer buyers are supporting the move higher. This suggests weakened demand and an increased likelihood of price stalling or reversing. When bullish momentum is fading, premiums are still attractive, and the stock is more likely to stay below your short strike.

When all four conditions align, the probability of a profitable bear call spread increases significantly. This disciplined, checklist-driven approach is what separates consistent traders from those who rely on hunches.

Bear Call Spread Example: SPY 622/627 Trade Setup

Let me walk through a real bear call spread on SPY, the S&P 500 ETF, to show how this strategy works in practice.

In this example, SPY has been on a strong run and is approaching a major resistance level near its all-time highs. The sustained rally has pushed SPY into overbought territory. This is an ideal scenario for a bear call spread.

SPY is trading at $603.36.

Trade Setup: SPY 622/627 Bear Call Spread

The Trade:

Sell to open SPY March 28, 2025, 622 call. Buy to open SPY March 28, 2025, 627 call. Net credit received: $1.20 ($120 per contract). Maximum risk: $3.80 ($380 per contract). Breakeven: $623.20. Probability of success: 76.28%. Potential return on risk: 31.6%.

Why This Setup Works:

The short strike at $622 sits $18.64 above the current price, giving SPY a wide margin of safety before the trade is threatened. With a 76.28% probability of profit, the odds are firmly in your favor. And the 31.6% return on risk means you are being well compensated for the defined risk you are taking.

If SPY remains below $622 at expiration, the spread expires worthless and you keep the full $120 credit. However, I typically do not wait until expiration. I close the trade early when the spread value declines by 50% to 75%, which means buying it back for $0.30 to $0.60. This locks in profits, frees up capital, and eliminates gamma risk in the final days before expiration.

How to Manage a Bear Call Spread: 3 Scenarios

The most successful options traders are risk managers first and profit-seekers second. In bear call spreads, position sizing and disciplined exits separate winning traders from those who take unnecessary losses.

Scenario 1: The Trade Is Winning

When the stock stays below your short strike and the spread is decaying in your favor, the best move is to close at 50% to 75% of maximum profit. In the SPY example, that means buying back the spread for $0.30 to $0.60.

Do not hold to expiration. The final week before expiration is when gamma risk accelerates, meaning small price moves create outsized changes in the option's value. Closing early locks in your gains and lets you redeploy capital into the next opportunity.

Scenario 2: The Trade Is Flat

When the stock is hovering near your short strike but has not breached it, patience is your ally. Theta decay is working in your favor every day. Monitor the position, set an alert at the short strike price, and prepare a plan in case the stock challenges your level.

Re-evaluate the IV environment. If implied volatility has dropped since entry, that is a tailwind because it shrinks the value of the options you sold. If IV is rising, the spread may widen even if the stock has not moved, which requires closer attention.

Scenario 3: The Trade Is Losing

If the stock moves against your position, you have multiple options for bear call spread risk management.

Close if the spread doubles. If you collected $1.20 in credit and the spread is now worth $2.40, that is your stop loss. Taking a defined loss preserves capital for the next trade. This is the single most important risk management rule for credit spreads.

Roll up and out. Move your spread to a higher strike price and a later expiration to buy more time and collect additional credit. Rolling is not free because it extends your exposure, but it can turn a losing position into a winner if the stock's advance stalls.

Convert to an iron condor. If implied volatility is expanding, adding a bull put spread below the current price creates a neutral strategy that benefits from range-bound movement. This is an advanced adjustment, but it turns a directional trade into a non-directional one.

Accept a small loss and move on. Not every trade will work. The law of large numbers only rewards you if you stay in the game. Taking small, defined losses and moving to a better setup is far better than hoping a losing trade will reverse.

Bear Call Spread Risk Management Rules

Risk management is not a section you skip. It is the reason professional traders survive long enough to compound their edge across hundreds of trades.

Keep risk per trade between 1% and 5% of total capital. This prevents any single bear call spread from materially harming your portfolio. If you have a $50,000 account, that means risking $500 to $2,500 per trade.

Use a stop loss based on the spread's value. If the spread doubles or triples in price relative to your credit received, it is time to exit. In the SPY example, a stop at $2.40 (2x the $1.20 credit) limits your loss well before reaching the theoretical maximum.

Never risk more than you can afford to lose on any single trade. The bear call spread maximum profit and loss are known at entry. Make sure the maximum loss is an amount you can absorb without it affecting your future trading decisions.

Be willing to adjust. Rolling a bear call spread, converting to an iron condor, or simply closing for a small loss are all professional responses to changing conditions. Stubbornly holding a losing position is not a strategy.

Where the Bear Call Spread Fits in Your Options Toolkit

The bear call spread is not a standalone strategy. It is one component of a broader options income framework built on premium selling and probability.

Credit spreads, including both bear call spreads and bull put spreads, are the foundation of defined-risk income strategies. When you combine a bear call spread above the market with a bull put spread below the market, you create an iron condor that profits from range-bound movement.

Covered calls serve a similar purpose on stocks you own. Cash-secured puts allow you to enter positions at a discount. Each of these strategies benefits from the same core principles: elevated implied volatility, disciplined strike selection, position sizing, and letting the law of large numbers work across a meaningful sample of trades.

The bear call spread is particularly valuable because it profits without requiring the stock to fall. It only needs the stock to not rise above your short strike, which gives you a wide range of profitable outcomes and makes it one of the most versatile tools in any options trader's playbook.

The Bottom Line on the Bear Call Spread Strategy

The bear call spread is not a speculative bet on market direction. It is a probability-driven, risk-defined income strategy that profits from overbought conditions, resistance levels, elevated premiums, and fading momentum.

Structure your trades around the 4-condition entry checklist. Choose strike prices outside the expected move with 68% to 85% probability of profit. Manage positions actively by taking profits at 50% to 75% and using stop losses based on the spread's value. And let the math work over time by staying disciplined across dozens and hundreds of trades.

Success in options trading is not about chasing the next big move. It is about stacking probabilities in your favor, managing risk like a professional, and making smart, calculated trades. When used correctly, the bear call spread allows you to profit even when the market does not move much, reinforcing the principle that consistent, risk-defined income beats reckless speculation every time.

May your short strikes hold and your spreads expire worthless,

Andy Crowder

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This newsletter is for educational purposes only and should not be considered investment advice. Options trading involves significant risk and is not suitable for all investors. Past performance does not guarantee future results. Always consult with a qualified financial professional before making investment decisions.