Using Bear Call Spreads to Protect Your Portfolio

When the market's been climbing steadily but the rally feels thin, when the leading stocks are stretched way above their moving averages and volatility is sitting near the floor, the real danger isn't missing out on more gains. It's watching months of profits vanish in a single violent pullback.

That's where the bear call spread earns its keep. It's a clean, defined-risk strategy that lets you add a measured short position and collect premium while you wait to see what happens next.

What It Is, and Why It Works

Here's the mechanics: You sell a call at a strike price you believe the market will stay below, then buy another call further out to cap your risk. You collect a credit upfront. If the underlying stock or index stalls out, drifts sideways, or pulls back, the spread decays in your favor.

There's a bonus when volatility picks up, those calls you sold get cheaper relative to what you paid, which helps your position. And because your net delta is negative, you've built yourself a small hedge against your long stock exposure.

Where It Fits in Your Arsenal

Think of this as a defensive overlay for portfolios built around stocks, LEAPS, Poor Man's Covered Calls, or the Wheel Strategy, especially after those sharp rallies that make you nervous. You can use the index ETFs you're already tracking (SPY, QQQ, DIA, IWM) to hedge your whole portfolio broadly, or pick single names where you're sitting on solid gains and expect some consolidation.

A Simple, Repeatable Setup

Underlying: SPY, QQQ, DIA, IWM, or any liquid large-cap stock.

Days to Expiration: 30 to 60 days gives you enough theta decay to work with while keeping gamma manageable.

Strike Selection: Sell your short call near 20 to 30 delta, just above recent resistance. Buy your long call $5 to $10 higher to define your risk.

Credit Target: You're aiming for roughly one-third of the spread width. On a $5-wide spread, that'd be around $1.65 in a perfect world, though more commonly you'll see $0.80 to $1.20.

Position Size: Keep it small. This is a hedge, not a home-run swing.

Management Rules (Defense Always Comes First)

Take profits early: Close the position when you've captured 40 to 60% of the max credit. Don't get greedy waiting for every last penny.

If price tests your short strike: Close early. Only roll to higher strikes for additional credit if that new short call sits back near 20 to 30 delta and your portfolio still needs that short-delta protection. Don't chase losing positions as price accelerates against you.

A Real-World Example

Let's say QQQ just finished a four-week sprint and is sitting at $608. You sell the 645/650 bear call spread with 36 days to expiration for $1.00 credit.

Max profit: $100 per spread if QQQ stays at or below $645 at expiration

Max loss: $400 per spread (the $5 width minus your $1.00 credit)

Probability of success: 81.17%

Probability of touch: 37.24%

Margin of error: 6.1% cushion

Your edge: You win in multiple scenarios, sideways, down, or even slightly up. Your core stock positions and PMCC winners stay intact, while the spread cushions part of any pullback.

When Not to Use This Strategy

This isn't crash protection. If you need tail insurance, this isn't it. Think of it as a glide-path hedge for stretched markets, not a parachute for sudden drops.

If you'll panic when price approaches your short strike, size smaller or don't place the trade at all. Know yourself.

How It Fits Your Overall Game Plan

Use bear call spreads after strong up-legs to trim your portfolio's temperature without selling positions you want to keep. They're mechanical, capital-efficient, and emotionally clarifying, you define your risk on day one, collect payment for being disciplined, and let time work in your favor.

In a world obsessed with calling market tops, this is a humble, rules-based way to play defense while staying invested. You're not predicting. You're protecting.

Probabilities over predictions,

Andy Crowder

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Disclaimer: This is educational content only. Not investment, tax, or legal advice. Options involve risk and aren't suitable for all investors. Examples are illustrative. Real results will vary. Talk to professionals before you risk real money.