Spread Parameters

$
Current stock price at trade entry
$
Strike of the call you sell (lower)
$
Strike of the call you buy (higher)
Long call strike must be greater than short call strike.
Calendar days remaining
%
Annualized implied volatility (same for both legs)
$
$
%
Annualized risk-free rate
%
Annualized dividend yield
Each contract = 100 shares per leg

Bear Call Spread Quick Reference

P/L at Expiration:

P/L = Net Credit

     - max(S - K1, 0) × 100 × Qty

     + max(S - K2, 0) × 100 × Qty

Key Terms:

  • S = Stock price at expiration
  • K1 = Short call strike (lower)
  • K2 = Long call strike (higher)
  • Breakeven = K1 + Net Credit per share
  • Max Profit = Net Credit
  • Max Loss = (K2 - K1) × 100 × Qty - Net Credit

Key Metrics

Net Credit --
Max Profit --
Max Loss --
Breakeven --
Short Call Premium --
Long Call Premium --

Formula Breakdown

P/L = Net Credit - [max(S - K1, 0) - max(S - K2, 0)] × 100 × Qty
Breakeven = K1 + Net Credit per share

P/L Diagram

Ryan O'Connell, CFA
CALCULATOR BY
Ryan O'Connell, CFA
CFA Charterholder & Finance Educator

Finance professional building free tools for options pricing, valuation, and portfolio management.

About YouTube

Understanding Bear Call Spreads

Video Explanation

Video: Bear Call Spread Explained

What Is a Bear Call Spread?

A bear call spread (also called a short call spread or call credit spread) is an options strategy that involves selling a call option at a lower strike price (K1) and simultaneously buying a call option at a higher strike price (K2), both with the same expiration date.

This strategy expresses a moderately bearish view: you profit if the stock stays below your breakeven price. It is a net credit trade because the short call (lower strike) collects more premium than the long call (higher strike) costs.

Key Characteristics

  • Max Profit: Limited to the Net Credit received at entry. Occurs when S ≤ K1 at expiration.
  • Max Loss: Limited to (K2 - K1) × 100 × Qty - Net Credit. Occurs when S ≥ K2 at expiration.
  • Breakeven: K1 + Net Credit per share
  • Outlook: Moderately bearish or neutral
  • Income: Net credit (you receive money to enter because the short call premium exceeds the long call cost)
  • Time Decay: Works in your favor — as time passes, both options lose value, benefiting the net short position

How to Read the P/L Chart

The solid blue line (At Expiration) shows three distinct regions: a flat profit region below K1 (you keep the full net credit), a declining profit/loss line between K1 and K2, and a flat loss region above K2 (max loss is capped).

The dashed dark blue line (Today / T+0) represents the theoretical P/L at trade entry using Black-Scholes for both legs. The smooth inverted S-curve shows how the spread value changes with the stock price before expiration.

IV Mode vs. Premium Mode

IV Mode: Enter a single implied volatility, and the calculator uses Black-Scholes to estimate both the short call and long call premiums. This mode also enables the "Today (T+0)" P/L curve on the chart.

Premium Mode: Enter the exact premiums for both legs. Useful when you know the actual market prices. Only the expiration payoff curve is shown because IV is needed to compute theoretical values before expiration.

When to Use a Bear Call Spread

  • You have a moderately bearish or neutral outlook on the stock
  • You want to collect premium income with defined risk
  • You prefer defined risk over a naked short call (unlimited loss)
  • You expect the stock to stay below the lower strike through expiration
Model Assumptions: This calculator uses the Black-Scholes model with the same implied volatility for both legs. In practice, different strikes may have different IVs (volatility skew). The model assumes European-style options, constant IV, continuous dividend yield, and a constant risk-free rate.

Frequently Asked Questions

A bear call spread (also called a short call spread or call credit spread) involves selling a call option at a lower strike price and simultaneously buying a call option at a higher strike price, both with the same expiration date. It is a net credit strategy that profits when the underlying stock stays below the lower strike. Both maximum profit and maximum loss are defined at entry, making it a defined-risk strategy.

The maximum profit is limited to the Net Credit received at entry, which occurs when the stock price is at or below the lower strike at expiration (both calls expire worthless). The maximum loss is (Higher Strike - Lower Strike) × 100 × Number of Contracts minus the Net Credit received, which occurs when the stock price is at or above the higher strike at expiration. Both outcomes are known before entering the trade.

The breakeven price is Lower Strike Price + Net Credit per share. The Net Credit per share is the premium received for the short call minus the premium paid for the long call. At the breakeven stock price at expiration, the loss on the short call exactly equals the net credit collected, resulting in zero profit or loss.

Implied volatility (IV) affects both legs of the spread. Higher IV increases both the short call and long call premiums, but the short call (lower strike, higher delta) is generally more sensitive to IV changes. This means the net credit typically increases with higher IV, which benefits the bear call spread seller. This calculator uses a single IV for both legs; in practice, different strikes may have different IVs due to volatility skew.

Use IV mode when you want the calculator to estimate both call premiums using Black-Scholes with a single implied volatility. This also enables the T+0 (today) P/L curve on the chart. Use premium mode when you know the exact market prices for both legs and want to see the expiration payoff based on those known prices.

Use a bear call spread when you are moderately bearish and want defined risk. A naked short call has unlimited loss potential, while the bear call spread caps your maximum loss to the width of the strikes minus the net credit. The trade-off is a smaller credit received compared to a naked short call.

This calculator uses the Black-Scholes model, which assumes European-style options (exercisable only at expiration). The expiration P/L diagram is identical for American and European call spreads on non-dividend-paying stocks. For dividend-paying stocks, the short call leg may face early assignment risk near ex-dividend dates, which could change the actual outcome versus the theoretical model.
Disclaimer

This calculator is for educational purposes only. Options trading involves significant risk of loss. Actual option prices and P/L may differ due to market conditions, bid-ask spreads, dividends, early exercise (American options), and other factors. The Black-Scholes model makes simplifying assumptions including constant volatility, a single IV for both strikes, and European-style exercise. This is not financial advice. Consult a qualified professional before making investment decisions.

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