Name: Bear Call Spread or Vertical Spread

Setup: Sell (short) Strike A call and Buy (long) Strike B call – same expiration month for both

Bias: Neutral to bearish


Break-Even: The short strike + credit received


Max Profit: Limited: Credit received

Max Loss: Limited: Strike A – Strike B – Credit received

Margin: Margin is equal to the Max Loss: Strike A – Strike B – Credit received

Time Decay: Time decay is a positive effect as you want both sides of the spread to expire worthless

Implied Volatility: The effect of implied volatility depends on where the underlying is in relation to the strikes.  If the underlying is trading near the short call then you want implied volatility to decrease.  If the underlying is near the long call then you want the implied volatility to increase.

Notes: None at this time

Featured in Trade Review: None at this time