What is a Bear Call Spread?

A Bear Call Spread is a “defined-risk” options strategy used when the market view is bearish to moderately bearish. It involves selling a lower strike call and buying a higher strike call with the same expiry.

Generally, the strategy generates a “net credit” because the premium received from the short call is higher than the premium paid for the long call. In a Bear Call Spread Strategy:

• Maximum Profit = Net Premium Received × Lot Size
• Maximum Loss = (Higher Strike – Lower Strike – Net Premium) × Lot Size

The long call limits the potential loss if NIFTY rises above the higher strike.

How to Execute the Bear Call Spread Strategy?

Let’s understand through a bear call spread Nifty example. Suppose NIFTY is trading at 25,000. A trader “sells” 25,200 Call at ₹150 and “buys” 25,400 Call at ₹70. By doing so, they receive a net premium of ₹80 (₹150 – ₹70). 

Now assume that at expiry, NIFTY remains below 25,200. Consequently, both calls expire worthless, and the ₹80 premium represents the maximum profit, before applicable charges and taxes.

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A Bear Call Spread combines a short lower-strike call with a long higher-strike call. Register on Trade246 today and gain access to the NFO (Nifty Futures & Options) segment at lifetime 0* brokerage.

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