Bear Call Spread Explained: Strategy, Profit and Loss, Real Scenarios

Introduction

In the world of options trading, not every bearish view calls for aggressive strategies like naked call selling or long puts. Sometimes, you expect the market to drift slightly lower—or simply stay flat—and you want to generate income without taking unlimited risk.

That’s where the Bear Call Spread shines. This defined-risk, moderately bearish strategy lets you earn a net premium by selling a call option while buying another at a higher strike price to cap your risk. Ideal for range-bound or mildly bearish market setups, this strategy works best when you’re confident that the price won’t rise much above current levels.

Key Takeaways

• Bear Call Spread Basics: Learn how this strategy uses two call options to generate limited income in bearish-to-neutral markets.
• Best-Use Scenarios: Discover when to use the Bear Call Spread based on resistance zones, sideways trends, and sentiment shifts.
• Trade Setup & Payoff: Understand how to structure your trade and calculate max profit, loss, and breakeven.
• Strategy Pros & Risks: Evaluate how the Bear Call Spread compares with other bearish strategies like the Bear Put Spread.

What is a Bear Call Spread?

A Bear Call Spread (also called a short call vertical spread) is an options strategy that involves:

• Selling a call option at a lower strike price (just above the current market price)
• Buying a call option at a higher strike price (further out-of-the-money)

Both options:

• Must have the same underlying and expiration date.
• Create a net credit (premium received), which is the trader’s maximum profit.
• Limit the maximum loss, making it a risk-defined strategy.

The Bear Call Spread is typically deployed when you have a moderately bearish view or expect the underlying asset to stay below a resistance level or within a range till expiry. You don’t anticipate a sharp drop, but you also don’t see strong upward momentum. The goal is to collect premium with limited risk, especially in sideways to slightly bearish market conditions.

Ideal Scenarios for Using a Bear Call Spread

• Scenario 1: Near Key Resistance Levels – The stock or index has approached a significant resistance zone, and technical indicators suggest weakening momentum. You expect the price to stall or face difficulty moving higher in the short term.
• Scenario 2: Post-Rally With Weak Momentum – After a sharp up-move, momentum indicators show signs of exhaustion. While the trend may not reverse sharply, you anticipate sideways movement or minor declines as the market digests recent gains.
• Scenario 3: Range-Bound or Sideways Market – The market is trading within a tight range during a low-volatility phase. With no strong directional bias, you expect the price to remain below a certain level, allowing you to benefit from time decay and stagnant movement.

How Does a Bear Call Spread Work?

Strategy Setup

• Sell Call Option – Strike closer to current market price
• Buy Call Option – Higher strike, same expiry

Key Calculations

• Net Premium Received = Premium from Sold Call − Premium Paid for Bought Call
• Maximum Profit = Net Premium Received
• Maximum Loss = (Difference in Strike Prices − Net Premium Received)
• Breakeven Point = Strike Price of Sold Call + Net Premium Received
  

Bear Call Spread Strategy With Example

With Nifty currently trading at 23,658, we hold a moderately bearish view for the month. The 24,000 level is a key psychological resistance, and we expect the index to remain below it until monthly expiry on 30th April 2025.

Nifty Options chain: 

Trade Setup (Monthly Options – Expiry 30 April 2025)

• Lot Size: 75
• Net Premium Received: 314 – 232 = 82 points
• Total Premium Collected: 82 × 75 = ₹6,150

Breakeven Point

• Breakeven Price = 24,000 (Short Strike) + 82 (Net Premium)
  Breakeven = 24,082
  

Payoff Scenarios at Expiry

Let’s break down how different expiry prices impact the outcome of the strategy:

Scenario 1: Nifty closes at ₹24,200 or above (Maximum Loss)

• 24,000 CE intrinsic value = 200 poitns
• 24,200 CE intrinsic value = ₹0
• Spread value = 200 points
• Net loss = 200 – 82 = ₹118 points
• Total Loss = 118 × 75 = ₹8,850 (Maximum Loss)

Scenario 2: Nifty closes at ₹24,100 (Partial Loss)

• 24,000 CE intrinsic value = 100
• Since the 24,200 CE is still OTM, it will go to zero.
• Net loss = 100 – 82 = 18
• Total Loss = 18 × 75 = ₹1,350 (Partial Loss)

Scenario 3: Nifty closes at ₹24,082 (Breakeven Point)

• 24,000 CE intrinsic value = 82 Points
• 24,200 CE still OTM
• Loss on short call equals premium received
• Net P&L = ₹0 (Breakeven)

Scenario 4: Nifty closes at ₹24,000 or below (Maximum Profit)

• Both options expire at zero
• You retain the full premium
• Total Profit = 82 × 75 = ₹6,150 (Maximum Profit)

Scenario 5: Nifty closes at ₹23,500 (Profit Still Capped)

• Despite sharp fall, both calls expire at zero
• Profit remains capped at net premium
• Total Profit = ₹6,150 (Profit Unchanged)

Risk-Reward Ratio

• Maximum Profit: ₹6,150
• Maximum Loss: ₹8,850
• Risk-Reward Ratio: 8,850 : 6,150 ≈ 1.44 : 1

This means for every ₹1 of potential reward, you’re taking on ₹1.44 of risk. The trade favors probability (higher chance of profit) over payoff size, making it suitable when you’re confident the index will remain below ₹24,000 till expiry.

Payoff Summary Table

Advantages & Risks of a Bear Call Spread

Advantages

• Defined Risk Exposure: The maximum loss is limited to the difference between strike prices minus the premium received, giving you clarity and control over risk from the start.
• Upfront Premium Income: This strategy generates immediate credit when initiated, offering steady income in sideways or mildly bearish markets.
• Lower Margin Requirement: Compared to naked call writing, the Bear Call Spread requires less capital and carries reduced risk, making it suitable for smaller accounts.
• Time Decay Benefits: As both options move closer to expiry, time decay (theta) works in your favor—especially if the price stays below the short call strike.

Risks

• Capped Profit Potential: No matter how much the underlying falls, your profit is capped at the net premium received, limiting upside in strongly bearish scenarios.
• Loss of Market Rallies: A significant upward move in the underlying can breach both strike prices, triggering the strategy’s maximum loss.
• Dependent on Price Stability: This strategy performs best in range-bound conditions. If the market becomes volatile or breaks above resistance levels, the setup may underperform.

Comparison: Bear Call Spread vs Bear Put Spread

Conclusion

The Bear Call Spread is a conservative options strategy that fits well in moderately bearish or sideways markets. With defined profit and capped loss, it gives traders a disciplined way to generate returns when strong trends are unlikely.

This strategy is especially useful when you have a neutral-to-negative view on the market and prefer limited risk exposure with Net Premium Received. 

Like every options strategy, success lies in timing, strike selection, and risk management.