Bear Call Spread TUTORIAL [Vertical Spread Options Strategy]

Рет қаралды 66,400

Күн бұрын

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The bear call spread is a bearish options strategy consisting of two separate call option transactions. One call option is sold and another call option at a higher strike price is purchased (same expiration cycle).
The bear call spread is one of the four vertical spread strategies.
The strategy has many other names that options traders use, including the short call spread, call credit spread, and simply selling a call spread.
In this video, we'll cover:
- Bear call spread explained (setup, explanation, max profit potential, max loss potential, breakevens)
- Historical trade examples so you can see exactly how the bear call vertical spread strategy has performed in the past in various scenarios.
- A demonstration of setting up a short call spread on the tastyworks trading platform.
Be sure to leave a comment down below with any questions you may have!
=== RECOMMENDED VIDEOS/RESOURCES ===
Vertical Spreads (Basics for Beginners): www.projectfinance.com/vertic...
Options Trading For Beginners (PLAYLIST): • Become an Options Trad...
tastytrade Tutorials (PLAYLIST): • tastyworks Tutorials
Option Pricing EXPLAINED: • Option Prices EXPLAINE...
Options Trading 101: • Stock Options Trading ...
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Пікірлер: 98

@allennerida1854 3 жыл бұрын

By far the most clear explanation I've seen

@franescobar474 4 жыл бұрын

Thank you very much for sharing your knowledge, Chris.

@marcosmejia8499 2 жыл бұрын

Great examples and explanations. Easy to understand. Thx

@amitg9519 5 жыл бұрын

Thank you for sharing the knowledge. May I request you to make video on premium decay analysis. Example if premium decay is high on call side compare to put it means stock or index price will go down and vice versa for particular expiry.

@Glodiator Жыл бұрын

As always, excellent video. Would love a video on screening for good candidates for this.

@markelcj 4 жыл бұрын

Very helpful videos. Detailed and concise. My question is why is the max loss not the cost of assignment? What am I misunderstanding in that relationship? Thanks!

@FallmasForever 4 жыл бұрын

Really great work. Everything I know about options, I’ve learned by watching your tutorials. Do you have any content discussing preferred entry and exit criteria for any of the strategies?

@lenfordmorris1407 8 ай бұрын

Close out around 75% of your profit

@breezefor5966 5 жыл бұрын

Great as always! ✔💯

@projectfinance 5 жыл бұрын

Thank you for the comment!

@edwarddaoud2293 5 жыл бұрын

Great presentation. Very clear

@projectfinance 5 жыл бұрын

Thank you!

@sandungabass6666 4 жыл бұрын

Liked and subscribed; got to know about this yesterday but didn't have an idea on how it really works. Thank you

@projectfinance 4 жыл бұрын

Thanks for the sub!

@ngchongsin2009 2 жыл бұрын

Very good explanation.

@zerototalenergy150 2 жыл бұрын

excellent !!thank you

@CrayCrayRedneck 3 жыл бұрын

Good stuff as usual.

@steventhuyen1615 4 жыл бұрын

Subscribed! You do a great job of explaining. One question though - how do you determine to use this method vs the bear put strategy?

@projectfinance 4 жыл бұрын

Thanks! It's based on preference and what you're doing. If you are making a spread trade based on the stock price remaining below a certain price, a bear call spread (selling a call spread) would probably be better than buying an in-the-money put spread. They are technically the same strategies when using the same strikes. Example: Stock is at $100 and you think it will stay below $105 over the next 14 days. Bear Call Spread: sell the 105 call and buy the 110 call in the 14-day cycle Bear Put Spread: Buy the 110 put and sell the 105 put in the 14-day cycle Both of the above trades will have very similar risk/reward as they are synthetically the same thing. However, in this case I'd choose the bear call spread as the options are all out-of-the-money and you'll avoid potential problems with assignment since the spread is near expiration. If you bought the 110 put and sold the 105 put, your short 105 put is $5 in-the-money and will rapidly lose its extrinsic value over the next couple weeks as expiration approaches. You might get assigned on the in-the-money short put on one of the days immediately before expiration since the short put is in-the-money and will have very little extrinsic value by then. In short -- they are the same strategies if using the same strikes but I'd always sell spreads when you think the stock price will remain within a certain price, and I'd buy spreads when I think the stock is going to make a move in a certain direction.

@2020nallano 4 жыл бұрын

Great Job explaining Bear Call Spread.

@projectfinance 4 жыл бұрын

Thank you for watching!

@louisthompson1020 2 жыл бұрын

Great Lecture

@theworldisallyours 4 жыл бұрын

Thanks so much!

@projectfinance 4 жыл бұрын

You got it!

@panamahub 3 жыл бұрын

Great well elaborated video too bad for non-us citizens is so hard to setup an account with an option broker.

@solracnatylac5294 4 жыл бұрын

Please bear (lol) with me as I am fairly new to options. I have been profitable so far but made a mistake and want to potentially create spread to minimize loss. Background: I bought a call option for a stock that I thought was going up, but the company delayed service due to COVID so now it is going down after shooting up. It is a cruise line (CCL). I think it will go back up, but at a later date. * Current price: $16 * Strike Price for Call Option Bought: $20 * Strike Price for Call Option Looking to Sell: $17.5 * Expiration date: 7/17/20 Questions: 1) Can I (2 days later) sell a call option at a lower strike price to create a spread and minimize my potential losses? 2) If so, what is the best way to close the spread? Should I wait at expiration or close out by reversing what I did before expiration? I am just trying to minimize my losses at this point. I don’t think the stock will plummet down, but I do think it will not reach my long strike price anytime soon. 3) should I close them out at the same time or separately? How do I determine the net price to close out if I bought the options separately and want to close out together? Should I calculate the net credit received and base of that? Ideally, I want to close these options and minimize losses as much as possible rather than holding it so I can just move on. Really appreciate any feedback or suggestions!!!!!

@nimietyskookumlucre6702 3 жыл бұрын

Thanks man

@datooriyaz1 4 жыл бұрын

Pls explain how to execute the first leg under a bull call option spread?

@johnsnow9232 5 ай бұрын

Excellent video

@projectfinance 5 ай бұрын

Thank you very much!

@munster1404 2 жыл бұрын

How about early assignment risk if short call is in-the-money?

@johnsnow9232 11 ай бұрын

Excellent

@projectfinance 11 ай бұрын

Thank you! Cheers!

@sukhpreetriyat8505 2 жыл бұрын

Noob question: In that hypothetical with the stock price at 313, Do you get assigned if you let it expire with the 310 call in the money?

@lifeknow-science9275 5 жыл бұрын

Good job bro

@projectfinance 5 жыл бұрын

Thank you!

@tahntalus 3 жыл бұрын

So I can let it expire to realize max profit?

@karimliulkar Жыл бұрын

Are you using IBKR? I am confused about their system. If I want to "sell to open a bear call", I choose the legs accordingly and then I have negative bid-ask prices, negative mid-price and for entering a limit net credit, I also have to put a negative value. Is this normal? And then I am prompted to choose for this combo: a buy order or a sell order. Should it be sell order if I sell to open a bear call spread?

@billassim9014 Жыл бұрын

Hi what if qqq is below the 195 call like at 194 thanks

@jamesdonalds5237 4 жыл бұрын

Outstanding explanation. Are there ever situations where you close the short call to lock in your profits but leave the long call open just to take a flyer?

@projectfinance 4 жыл бұрын

Thank you! Yes, there could be a scenario in which you do that. Particularly if the spread is pretty much worthless (both options have little value). You can definitely close the short call and let the long call ride just in case something crazy happens and the stock shoots up. I wouldn't recommend closing out the short call if the long call still has plenty of value though, otherwise you are completely changing the outlook of the position and will lose money if the stock doesn't increase quickly.

@jamesdonalds5237 4 жыл бұрын

@@projectfinance Makes sense. Thanks again. Your channel is superb.

@JakeTheStockGuy Жыл бұрын

How do you select your strike prices? Are you looking for anything in the Greeks? Like delta

@allenzhang6203 3 жыл бұрын

Why not sell ITM call instead of OTM call,could u tell me the difference?

@DermaGlowOasis 11 ай бұрын

When you buy a long call isn't the stock price supposed to be above?

@Ilyakurishko 4 жыл бұрын

Thank you for the video! One question, if I may. There are calls for Tesla which are 600 usd higher than current price though expiration is just 5 days away. They are fully extrinsic value. There is almost not chance for price to get there. So it is obvious short to benefit from time decay, I’m just trying to figure out where is the catch? It looks too easy to short those calls as they become worthless in 5 days, though price is 3-5 usd

@jesuszepeda8119 3 жыл бұрын

I am trying to figure out the same thing.

@fernandodavidez757 2 жыл бұрын

Me too??

@gwentchamp8720 4 жыл бұрын

Awesome video dude !! I'm going to try this out soon since we're in a bear market !

@projectfinance 4 жыл бұрын

Thanks for watching and commenting! Good luck and stay safe out there in these markets!

@rookandpawn 3 жыл бұрын

The last point is so incredibly important It's called pin risk and it's literally the stuff of nightmares. It's not what you want to avoid It's something that you should never ever allow happen to you.

@MCAQUIN0 Жыл бұрын

So you just let it expire? I don't have to close the Position? I'm with interactive broker. Im trying to close a trade but the limit price says negative like ask is -.09

@rauljimenez6183 4 жыл бұрын

Do you advise to enter a stop loss within the actual bear call spread to exit the trade if it starts going the wrong way

@projectfinance 4 жыл бұрын

You can certainly use one. I would personally use one if you are selling a spread with way more risk than reward. For instance, if you collect $1.50 in premium for a $10-wide spread, you have $150 to make and $850 to lose. I'd probably close this spread before the maximum loss, but I'd have a trigger for when I take the loss. It could be a literal price level, such as $5.00 on the spread ($350 loss at that point), or it could be closing the spread when the stock price gets to a certain price, such as the strike price of the short call. You can make up whatever rules make sense to you.

@rauljimenez6183 4 жыл бұрын

@@projectfinance Thank you. Do you have any videos or training about this subject. Ex: how to place a stop( or stop limit) order on a bear call or bull put that is going the wrong way?

@tweetypham8492 4 жыл бұрын

when do i know to use bear call spread vs bull call spread? thanks

@haydenhenderson5954 3 жыл бұрын

Depends on if you’re a bullish or bearish bro

@ebayybae8061 3 жыл бұрын

Thank you!!! There is no any pro info about Options into Russian.

@IMChrisThom 3 жыл бұрын

In the examples you offer could you not set up a stop to close the positions when you cross your B/E?

@projectfinance 3 жыл бұрын

You could, but the b/e is ONLY applicable at expiration. It doesn't really mean anything before expiration. If there's 30 days to expiration and the stock is at your b/e, your position will not necessarily have a $0 p/l.

@IMChrisThom 3 жыл бұрын

@@projectfinance Hmm. Is there something that can explain this further? Or what would be an option/strat to get out before taking max loss?

@projectfinance 3 жыл бұрын

@@IMChrisThom The breakeven is the price at which the options in the spread will have net intrinsic value equal to your entry price. If I buy the 150/160 call spread for $2.33, then the breakeven is $152.33 because at expiration, the 150 call will have $2.33 of intrinsic value and the 160 call will have $0.00 of intrinsic, leaving the spread with a value of $2.33. Before expiration, the options will have lots of extrinsic value, which means the price of the spread will not be the same as the net intrinsic value in the spread. Net intrinsic value = Intrinsic value in the long option - intrinsic value in the short option

@gusjean8744 4 жыл бұрын

Can you exit a call credit spread on the same day of creating it??

@TheTongueofRa 4 жыл бұрын

Yes, its just a matter of buying&selling your call options to cancel them out. Most brokerage programs will even do most of the work for you.

@famfam0 3 жыл бұрын

if you have a day trading account, yes.

@libbyduo1419 2 жыл бұрын

so can I close it at anytime i want

@projectfinance 2 жыл бұрын

Yes

@rudyzk 3 жыл бұрын

You sell and buy at the same time, but i don't understand, to sell something you have to buy it first?

@justusforviolin2719 7 күн бұрын

No, and the two contracts act as a hedge. Watch his excellent vid on option basics first.

@bradmcclure4945 3 жыл бұрын

scenario calendar spread buy 4$ jan8th and sell 4$ jan15th for a net debit of 13$ my goal is to exercise the jan8th calls early

@gregoryfield8884 4 жыл бұрын

Okay so max potential loss question. What if your lower sold call is in the money, and it gets exercised? Couldn't you technically lose a lot more?

@arupian666 4 жыл бұрын

How ? Say you sold the $100 strike and bought the $110... your max loss would be $10 (you have the obligation to sell at $100, but the right to buy at $110)... what scenario would increase that loss potential so that you'd lose "a lot more" ?

@gregoryfield8884 4 жыл бұрын

@@arupian666 okay so what if the stock goes to $105 and you get exercised on the $100 option but since your $110 call it OTM, it expires worthless. You'd be out $500 in this example and have to come up with $10,000

@arupian666 4 жыл бұрын

@@gregoryfield8884 Yes, so you get assigned, your account the next day will show -100 shares, and +$10,000 (you SOLD them, remember)... you'd then buy back the shares to cover your short stock position with the $10,000 + $500 out of pocket. So you're down $500. But your MAX loss in this example is $10 (difference between the strikes) x 100 = $1000. So you'd only lose half your max loss if the stock went to $105. (yes, there's assignment fees/the money you got for the premium which will take a small chunk out of what you're down, but easier to stick with round numbers.)

@Clippedyou1 2 жыл бұрын

Why dont you mention that you need a margin account and maintenance margin of some amount to perform and hold the trade? This is very important point.

@kam9625 Жыл бұрын

This dudes looking at me like I’m in a video game dialogue sequence

@projectfinance Жыл бұрын

😂 awkward NPC for sure. I got better over time and newer videos are more natural :D

@mikereilly6894 Жыл бұрын

is the audio not working for anyone else?

@projectfinance Жыл бұрын

Your browser tab might be muted

@Crusader926 4 жыл бұрын

Speed 1.25 is wayyyy better yall

@pauldean7143 3 жыл бұрын

Great info. Please blink... once... BLINK DOOD!

@projectfinance 3 жыл бұрын

Old video where I didn't blink :/

@Swishy3wick 3 жыл бұрын

Something is not clicking for me. I am not understanding why the loss potential has a cap. Specifically because we are shorting a call. But the stock price can increase indefinitely, so there is an indefinite loss you might realize when you have to pay to cover your short (lets pretend we have no exit triggers.) Yes the call option price will go up as well in that situation but we can't know how much that stock will go up, nor be sure of what the profit from the long call will be less the loss from the short call. .....right? I must be missing something obvious....

@projectfinance 3 жыл бұрын

Because you're buying another call above the short call. If you short the 100/105 call spread and the stock goes to $1,000, the short 100 call will be worth $900 but the 105 call you own will be worth $895. The spread's value will therefore be $5.00.

@Swishy3wick 3 жыл бұрын

@@projectfinance Ohhh it hadn't clicked that we WILL be able to predict the cost of the options at whatever price the shares reach. Thanks so much!

@markspin4596 5 жыл бұрын

Shame that don't allow us Aussies to open a trading account with them anymore...

@Adrianlandl86 3 жыл бұрын

I liked your infomative videos but found them to put me to sleep. I tried playing them at 1.5x normal speed and problems solved.

@projectfinance 3 жыл бұрын

Interesting! These older videos were much faster paced compared to my newer ones. Surprised you wanted to speed them up. You must be a very fast learner.

@Adrianlandl86 3 жыл бұрын

projectoption I wish