Knowledge Base
Ranker Spread: Bear Call Spread
Last Updated: September 2, 2022


Bear Call Spread

How are Spreads used in the Brutus Ranker?

A spread type is used in every Brutus Options Ranker strategy in combination with a ticker group to narrow down the creation and evaluation of options trading opportunities to those most relevant to you.  This knowledge-base article gives you a preview of the Bear Call Spread spread details, but the full details can only be viewed inside the app.
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Bear Call Spread Payoff Diagram

A bear call spread setup involves selling one call (at or near the money) and buying one higher-strike call (further out of the money) at the same time.  Having two different strike contacts in the order creates a spread.

When selling this spread at trade entry, the trader is obligated (if the buyer exercises their contract) to sell (or sell short) the underlying shares at the strike price of the call that was sold.  The trader also has the right to buy the same shares at the purchased call’s higher strike.  By spreading the trade, the user has limited their potential losses to the difference between the two strikes.

Since the trader risks having to sell shares at a lower price than the price the trader has the right to buy the same shares, the trader is compensated for the risk by receiving a premium at the time of trade entry.  This premium is the difference between the sold call’s credit and the bought call’s cost.

The bear call spread is frequently used by beginner and seasoned options traders alike.  It is often used in combination with bull put spreads in a single portfolio to make the portfolio more neutral in it’s direction.  This bear call spread, when optimized as part of an overall strategy, allows the trader to take advantage of decaying options while limiting their risk at tradeoff of higher potential profits seen in a short call setup, which has unlimited risk and not suitable for many investors.

This setup is particularly well suited for small brokerage accounts and those with limited options trading permissions.

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View More in the Ranker App

This knowledge-base article is only a preview of the Bear Call Spread spread.  View more in the Brutus Options Ranker App.  No registration required.
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