Bear Call Spread

Bear call spreads profit from time decay, which means you don't need the stock to fall - just staying below breakeven is enough. You also get paid upfront (credit) instead of paying (debit). The trade-off is capped profit and the need for margin.

If the stock rises above your short strike at expiration, both calls will be in-the-money. Your maximum loss is the spread width minus the credit received. For example, a A$5 wide spread with A$1.20 credit has max loss of A$3.80 per share (A$380 per contract).

Yes, Australian equity options are American-style and can be assigned anytime. Early assignment on calls is most likely when the option is deep ITM near an ex-dividend date, as the holder may want to capture the dividend. If assigned, you'll sell 100 shares at the strike price.

Margin requirement is typically the spread width minus the credit received. For a A$5 wide spread with A$1.20 credit, margin is approximately A$3.80 × 100 = A$380 per contract. Requirements vary by broker, so check with yours.

Best practice is to close at 50% of max profit. If you received A$1.40 credit, consider closing when you can buy back the spread for A$0.70 or less. This locks in profits and frees capital without waiting for expiration.

Use bear call spreads when IV is elevated (above 30-50%) because you're selling expensive premium. Use bear put spreads when IV is low because you're buying cheap premium. Bear call spreads also benefit from time decay, while bear put spreads need the stock to move down.

Most traders sell calls at -0.25 to -0.35 delta for optimal risk/reward. This gives approximately 65-75% probability of profit. More aggressive traders might sell -0.40 delta (more premium, higher risk), while conservative traders sell -0.20 delta (less premium, lower risk).

If the underlying rises to your short strike: 1) Close for a manageable loss before max loss, 2) Roll up and out to higher strikes and later expiration for additional credit, 3) Convert to iron condor by adding a put spread. Never let a tested spread expire - manage it actively.

After rallies, stocks often consolidate or pull back (mean reversion). Additionally, call IV may be elevated as traders speculate on continuation. Selling calls captures this inflated premium. The probability of continued sharp upside decreases after extended rallies.

Yes, but differently than puts. If your short call is ITM as ex-dividend approaches, you may be assigned early by a holder wanting to capture the dividend. They exercise the call, receive shares, and get the dividend. Monitor deep ITM calls before ex-dividend dates.

Diversify across 5-10 uncorrelated underlyings, maintain 30-45 DTE rolling schedule, size each position at 1-2% max risk, close at 50% profit, and manage losers at 200% of credit. Focus on stocks that have rallied to resistance. Track aggregate delta, theta, and vega. Rebalance monthly.

Sell bear call spreads on stocks you own (modified covered call) or correlated stocks. This generates income while capping upside. Unlike single covered calls, the spread limits loss if the stock rallies sharply. Use strikes above your sell target to ensure you're comfortable with assignment.

Roll when the underlying reaches your short strike, not after it's deep ITM. Roll up 1-2 strikes and out 2-4 weeks. Only roll if you can collect net credit. Maximum rolls: 2-3. If still losing after 3 rolls, close and accept the loss. Never roll for a debit.

After rallies, call IV sometimes spikes as speculators buy calls. This is opposite of the normal put skew. Selling calls during these periods captures excess premium. Track the put-call IV differential; when calls are relatively expensive, bear call spreads offer better risk/reward.

Key filters: RSI > 65 (overbought), price > 2 standard deviations above 20-day mean, IV Rank > 40%, price at or near resistance, declining volume on rally. Backtest shows these filters improve win rates by 5-10% vs unfiltered entries. Mean reversion tendency is the edge.