Call Bear Spreads

The call bear spread is the mirror of the call bull spread: the exact same two calls, but the long and short legs are swapped. Swapping the legs flips everything: the direction, the cash flow, and which way the spread has to move.

The Bearish, Collect-Premium Position

A call bear spread (also called a bear call spread or a credit call spread) is a bearish vertical entered for a net credit. It is the "collect premium and hope the market stays down" way to be bearish with two calls.

• You sell (write) the more valuable lower-strike call and buy the less valuable higher-strike call, so premium comes in on net.
• The bought higher-strike call is the protective leg. On its own, a short call has an open-ended loss if the futures runs up; the long call caps that loss and turns the position into a defined-risk trade.

Build: Sell the Lower Strike, Buy the Higher Strike

• Sell (write) the call at the lower strike; buy the call at the higher strike, same expiration, same underlying futures.
• The lower-strike call you sell brings in more premium than the higher-strike call you buy costs, so you receive cash on net. The position is a net credit (premium received), and that credit is the most you can make.

Direction: Profits as the Futures Falls and the Spread Narrows

NFA annotates this spread "spread to narrow." The cause-and-effect chain runs opposite to the call bull spread:

• Futures price falls, or simply stays below the lower strike while time decays → both calls lose value → the gap between the two call values narrows toward zero → the writer keeps the credit.
• The best case is both calls expiring worthless: the gap has collapsed to zero and none of the credit is given back.

Think of it this way: you already collected your money up front. Now you just want both calls to fade away so you keep it. A falling or flat market does that; a rally is what threatens the credit.

Exam Tip: Gotchas

• Narrow, not widen. This spread wants the gap between the two calls to collapse to zero. If an answer says it profits as the spread widens, it has the credit logic backwards.

Maximum Profit and Maximum Loss

• Maximum profit = the net credit received. Reached when the futures settles at or below the lower strike (both calls expire worthless, gap at zero).
• Maximum loss = (strike difference) minus the net credit. Reached when the futures settles at or above the higher strike (both calls in the money, gap at the full strike difference, so you pay out the strike difference and keep only the credit).
• Breakeven (concept): lower strike plus the net credit.

Example: sell the 100 call and buy the 110 call for a net credit of 4.

• Strike difference = 110 minus 100 = 10.
• Maximum profit = 4 (the credit), reached at or below 100.
• Maximum loss = 10 minus 4 = 6, reached at or above 110.
• Breakeven = 100 plus 4 = 104.
• Check: max profit plus max loss = 4 plus 6 = 10, the strike difference. Foots.

Notice the same two strikes as the call bull spread example produce the same breakeven (104) and the same total (10), but the profit and loss trade places. That is the debit-credit mirror in action.

Exam Tip: Gotchas

• A call bear spread is a CREDIT. You receive cash to enter, and that credit is the most you can make. An answer that calls it a debit position has confused it with the call bull spread.
• The small credit pairs with a large loss. Max profit is the credit; max loss is the strike difference minus the credit. A credit spread's downside is bigger than its upside, the reverse of a debit spread.