Posted on March 8th, 2010 
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Advantages of Bear Call Spread
- Loss is limited if the underlying financial instrument rises instead of falls.
- If the underlying instrument fails to drop below the strike price of the out-of-the -money sold call option, the profit yield will be greater than just buying put options.
- Able to profit even when the underlying asset remains completely still.
- Lower risk than simply writing naked call options as maximum downside is limited by the bought call option.
Disadvantages of Bear Call Spread
- There will be no more profits possible if the share price drops beyond the strike price of the sold call option.
- Because it is a credit spread, there is a margin requirement in order to put on the position.
- As long as the short call options remain in-the-money, there is a possibility of it being assigned. You may then have to purchase the underlying stock to meet the sold call obligation.
To receive ASX Option Recommendations or to learn more about Bull Call Spread, Bull Put Spread, Bear Call Spread, Bear Put Spread Strategies please request the Option Spreads eBook by contacting us on 1300 368 316 or info@totaloptions.com.au
