An alternative term for a bear call spread, which is an option strategy whereby a number of call options are bought at a certain exercise price and an equal number of calls (with the same expiration date and underlying asset) are sold at a lower exercise price. The option trader following this strategy may make a limited profit if the market price of the underlying drops below the option exercise price at which the trader sells the calls. However, and though the profit potential is limited, the trader also limits any downsize consequences. If the market turned out extremely bullish, the trader would incur losses on the calls he sold. Some of the losses would be recovered should the market price of the underlying surpass the exercise price of the purchased options.
Bear call spreads are instrumental for investors who are fairly pessimistic on an underlying stock, i.e. if they expect the stock price to go down moderately. Thanks to the put-call parity, this strategy can be replicated by taking two opposite positions on the same put option in a similar strategy known as a bear put spread.
The bear call spread is also called a short call spread.
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