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Bear Call Spread
Also called Short Call Vertical, a Bear Call Spread is the simultaneous sale of a lower strike price Call and purchase of a higher strike price Call, with the same expiration. These are usually done for a credit.
Payoff Diagram:
Direction Assumption: Bearish
Maximum Profit: Limited to premium received.
Maximum profit is realized when the underlying moves to or below the Short Call strike price on expiration.
Maximum Loss: Limited to the difference between the two strike prices, minus the premium received when selling the spread. Maximum loss realized when the underlying moves to or above the Long Call strike price on expiration.
Breakeven Price: Equal to the Short Call Strike Price + Premium received
Theta: Passage of Time -> Positive Effect
The net effect of time decay is positive. It will erode the value of the Short Call in a bigger extent than the Long Call.
