Bear Call Spread

Bear call spreads allow you to profit from theta decay - you make money just from time passing. You don't need the underlying to fall; it just needs to stay below your short strike. This gives you a higher probability of profit (65-75%) compared to buying puts (typically 45-55%).

If STI is above your short strike at expiration, your loss depends on how far above. Your maximum loss is capped by the long call you purchased. For example, with a 3250/3300 spread, if STI is at 3350, your loss is the max loss (spread width minus premium received). But you can always close early to limit losses.

Yes, bear call spreads require margin because you're short a call option. However, because you also own a protective call, margin is limited to the spread width minus the premium received. For a 50-point spread, margin is typically around S$175-200 per contract.

You receive the net credit immediately when you enter the trade. It appears in your account right away. However, it's not realized profit until you close the position or the options expire worthless.

A naked call has unlimited risk (theoretically no cap on how high a stock can go). A bear call spread has defined risk because the long call you buy protects you. The trade-off is that you collect less premium with a spread, but your risk is capped.

Use bear call spread (credit) when: IV is high (sell expensive premium), you want theta decay on your side, and you're neutral to moderately bearish. Use bear put spread (debit) when: IV is low (buy cheap premium), you expect a significant move down, and you want more directional exposure.

Almost always close early. Close at 50% of max profit to lock in gains. Close by 21 DTE even if not at target. Close by 7-10 DTE regardless of P&L to avoid gamma and assignment risk. Letting spreads expire is risky - small price moves in the final days can turn winners into losers.

For standard bear call spreads, target 0.25 to 0.35 delta on your short call. This gives 65-75% probability of the option expiring OTM. More aggressive traders might sell 0.35 to 0.40 delta for more premium, while conservative traders might sell 0.15 to 0.20 for higher win rate but smaller profits.

IV crush helps bear call spreads. After earnings, IV typically drops significantly. Since you sold options, this decrease in IV causes the options to lose value faster, which is good for you. You might see your position jump to 40-60% profit immediately after earnings just from IV crush.

Consider closing. While the standard target is 50%, capturing 25% profit with 35 DTE means you've made good progress quickly. You could close and redeploy capital to a new trade. Alternatively, hold until 50% target, but set an alert to monitor. Don't get greedy.

Look for contango (front month IV < back months) as the normal state for entry. Backwardation (front month IV > back months) indicates fear and elevated premiums - excellent for selling spreads but be aware of potential for sharp moves. Enter credit spreads when volatility term structure is normalizing from elevated levels.

Limit total credit spread exposure to 20-25% of portfolio value. Within that: diversify across 4-6 underlyings, stagger expirations (don't have everything expire same week), balance bullish and bearish credit spreads. Monitor aggregate Greeks - keep portfolio theta positive but don't be too directional with delta.

Options: (1) Close at loss if thesis invalidated - capital preservation first. (2) Roll up and out - close current spread, open higher strikes in later expiration for credit. This gives time and raises breakeven. (3) Convert to iron condor - add bull put spread at lower strikes to collect premium and reduce cost basis. Only roll/adjust if thesis is intact.

With 70% win rate and 2:1 risk/reward (risk S$200 to make S$100), you need to size so that: (Win rate × Avg win) > (Loss rate × Avg loss). With 70% wins at S$50 (50% of max) and 30% losses at S$200, expected value = (0.7 × S$50) - (0.3 × S$200) = S$35 - S$60 = -S$25. You need to either improve win rate, reduce losses with stops, or adjust position sizing.

Singapore bank stocks (DBS, OCBC, UOB) are 80%+ correlated. Running bear call spreads on all three during a bank rally means one bullish event hits all positions. Solution: Use STI index for diversified exposure, limit individual stock spreads to one bank at a time, balance with uncorrelated sectors, or hedge with bull put spreads on the index.