Contents

Bear CALL Spread

Bear Call spread is a bearish options strategy. It involves selling a call of lower strike (high premium) and buying a call of a higher strike (low premium). It is a net credit position, that is, you will receive premium and be a net seller.

Trade Set-Up

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Sell lower strike CALLs

short call-Finvezto

Buy higher strike CALL

Naked Call 1-Finvezto

Bear CALL Spread

Bear Spread-Finvezto

Entry Checklist

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Market Outlook
  • Bearish to Neutral Outlook
  • Price should be trading below a resistance zone
  • Volatility
  • Spreads can be used when the volatility is low
  • The difference between premiums is high when volatility is low
  • Open Interest
  • Build up of CALLs near the resistance zone is ideal.
  • Calls sold should be more than the number of PUTs
  • Strike Price
  • Sell at a strike price at least 100-200 points above the resistance zone identified when selling Nifty Bear Call Spreads
  • Positional or Intraday?
  • Holding positions overnight is recommended as you can capture overnight decay of 5-10 points in Nifty options
  • It is a consistent income strategy
  • Intraday returns are significantly lower compared to straddle or strangle.
  • Risk Profile

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    Risk [Loss]
  • Maximum Risk is limited to the difference between the two strikes minus the net credit received.
  • Reward [Profit]
  • Maximum profit is limited to the difference between the premium of the two calls you sold and bought while initiating the position.
  • Break Even Point
  • The Strike Price of the CALL option sold at lower strike plus the net credit received.
  • Options Greeks Impact

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    Time Decay Impact [Theta]
  • Time decay is helpful for this position
  • Volatility impact [Vega]
  • When the price falls as predicted and if volatility also falls, then both options will decay quickly and the position will be profitable
  • As long as price remains below the lower strike CALL irrespective of the volatility, you will profit from the position.
  • Price Impact [Delta]
  • As long as price remains below the resistance level identified and below the strike price of the CALL sold, you will profit.
  • Trade Management & Exit

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    Rolling & Adjustments
  • If you have received more than 50% of your net credit, then close the position and sell another spread to receive higher net credit.
  • Stop Loss
  • Stop Loss should be set in such a way that Risk is limited to 1-2% of your entire capital
  • Exit Conditions
  • Exit when price breaks above the resistance zone
  • Exit when your loss is 1-2% of your capital
  • Exit when you receive more than 50% of the net credit
  • A Word of Caution

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    • This is a consistent income strategy. With a capital of about Rs 25000 you can make around Rs 375 to Rs 750 (5 to 10 points in Nifty Options) in weekly options overnight depending on the day of the week. Loss is limited and this gives you peace of mind.
    • Trade only on Indices as they are less volatile.