Bear Call Spread


In recent days, the market has spiked off the August lows and many stocks have recovered nicely. However, there is no certainty that this rally will hold. If I had a large portfolio, in this type of situation, I might sell an out-of-the-money Bear Call Spread in the S&P 500 ETF (SPY).

This strategy involves the selling of a call at a lower strike price, while simultaneously buying a call at a higher strike price. The maximum profit on this strategy is the premium you collect. The maximum loss is the difference between the strikes, minus the premium you collect.

Here is an example:

Let’s say stock XYZ is trading at 90. You could theoretically sell the 100/105 bear call spread for $1. To execute this trade, you would:

Sell the 100 calls, 

Buy the 105 calls,

For a total credit of $1.

Here is the graph of this trade at expiration.

bear call spread

As you can see, as long as the stock stays below 100 by expiration, you will collect the $1 in premium, or $100 per spread sold. If the stock goes to 105 or above, your losses are capped at $4, or $400 per spread sold. 

This is a strategy that I always have in my personal portfolio. I am long enough stocks that if I sell an out-of-the-money call spread, perhaps 5%-6% out-of-the-money, I would be thrilled if I lost on this spread because my other positions would have gained 5%-6% along the way.


 Jacob Mintz is a professional options trader and chief analyst of Cabot Options Trader and Cabot Options Trader Pro. Using his proprietary options scans, Jacob creates and manages positions in equities based on risk/reward and volatility expectations. Jacob developed his proprietary risk management system during his years as an options market maker at a top-tier options trading company in Chicago.

Stock Picks


This stock could rise 50% before becoming fairly valued.

This hot technology company is growing like a weed, thanks to products that speed up cloud communications.

This stock is somewhat well known, but far from well loved.

Cabot Wealth Advisory

Nine Characteristics of Great Growth Stocks

By Timothy Lutts on October 24, 2016

Recommending great growth stocks is our specialty at Cabot. But so is education--we want you to be able to find growth stocks on your own too. Here are nine characteristics of what to look for.Read More >

How to Find Great Growth Stocks in a Scary Market

By Paul Goodwin on October 21, 2016

Even in today’s scary market, there are great growth stocks out there. Here’s how to find them—and how to avoid the kind of losses that can haunt your portfolio.Read More >

Buy This Small-Cap Tech Stock as the Nasdaq Thrives

By Tyler Laundon on October 20, 2016

Technology stocks are thriving, as the Nasdaq has been outpacing the S&P 500 and the Dow for months. And one small-cap tech stock in particular is outperforming the industry’s big boys. Read More >