A Bear Put Spread involves buying a put option at a higher strike price and…
Bear Call Spread
A Bear Call Spread involves selling a call option at a lower strike price and buying a call option at a higher strike price. It profits from a moderate price decline or stability.
- Ideal for moderately bearish conditions, where price is expected to stay below the lower strike price.
- Selling a slightly OTM call generates premium income, while buying a higher strike call limits losses.
- Risk is capped at the difference in strike prices minus the net premium received.
Example:
- NIFTY trading at 18,000.
- Sell 18,200 Call at ₹100 and buy 18,400 Call at ₹50 (lot size = 50).
- Outcome:
- If NIFTY stays below 18,200 at expiry:
- Both options expire worthless.
- Net profit = ₹2,500 (premium collected).
- If NIFTY rises to 18,300 at expiry:
- Loss on sold call = ₹100 × 50 = ₹5,000.
- Gain on bought call = ₹50 × 50 = ₹2,500.
- Net loss = ₹5,000 − ₹2,500 − ₹2,500 = ₹0.
- If NIFTY rises to 18,500 at expiry:
- Loss on sold call = ₹300 × 50 = ₹15,000.
- Gain on bought call = ₹100 × 50 = ₹5,000.
- Net loss = ₹15,000 − ₹5,000 − ₹2,500 = ₹7,500.
- If NIFTY stays below 18,200 at expiry: