What is the main strategy involved in a bear spread with calls?

The main strategy involved in a bear spread with calls is based on the expectation that the underlying asset’s price will decline. This strategy typically consists of buying high strike calls and selling low strike calls.

In this context, the trader buys call options at a higher strike price, anticipating that the market will not rise above this price before the options expire. By simultaneously selling call options at a lower strike price, the trader limits their risk while also collecting a premium. The goal is to maximize the profit from the difference between the two strike prices if the underlying asset does not exceed the lower strike price, which would allow the trader to profit from the premiums received from selling the lower strike calls while holding the higher strike calls.

Understanding the mechanics of a bear spread with calls requires the recognition of how options work in relation to market movements. If the market price of the asset falls, both the lower and higher strike calls will lose value; however, the aim is to maintain a profitable position where the lower strike sold option diminishes quicker, allowing the trader to potentially close the position for a net gain before expiration.

The choice concerning buying high strike puts and selling low strike puts relates to a different strategy—a bear put spread—which operates under a similar bearish anticipation but makes