Credit spreads
Bear call spread
Sell an out-of-the-money call, buy a further out-of-the-money call.
Index goes downOpens for a creditTraded options beforeLoss capped
How it works
The mirror of the bull put spread. You keep the credit as long as the index fails to rally past the strike you sold, and the bought call bounds the loss if it does.
What it costs you when you are wrong
Capped at the gap between the strikes minus the credit, and the cap is normally much larger than the credit. Rallies in an index tend to be persistent, so this can be wrong for several expiries in a row.
The position
- 1Sell the call 2 strikes out of the money
- 2Buy the call 5 strikes out of the money
- Enter
- 4 trading days before expiry
- Exit
- hold to expiry
- Legs
- 2
Test it yourself
This runs against real historical market data. Nothing is uploaded, nothing is stored, and the result is not a prediction — it is what this rule would have done, on that index, in that year, with the costs shown.