Which option strategy would you use to hedge a potential decline in a stock that you hold?

The bear spread with calls is an effective strategy to hedge against a potential decline in a stock that you hold. This strategy involves simultaneously buying a call option at a higher strike price and selling another call option at a lower strike price. The premium received from selling the lower strike call can offset some of the costs of purchasing the higher strike call.

In a scenario where the stock price declines, the sold call option (at the lower strike) would not be exercised, thereby allowing you to benefit from the limited loss through the purchased call option at a higher strike. This creates a defined risk profile and allows you to take advantage of a bearish move without exposing your portfolio to unlimited downside risk.

Additionally, it's important to recognize that this strategy is particularly well-suited when you expect a moderate decline rather than a significant drop, as it effectively establishes a cushion against losses while still allowing for potential upside gains within the defined price range.