Bear Call Spread

You receive credit because you take on an obligation - if FTSE rises above your short strike, your short call becomes valuable (to the buyer), and you must buy it back for more than you sold it. Your long call limits how much you can lose, but you can still lose the spread width minus your credit.

You lose money, but not the maximum. For example, if your spread is 7,900/8,100 and FTSE expires at 8,000, your short call is worth 100 points ITM, your long call is worthless. Your loss is 100 minus your credit. It's a partial loss.

Yes, for UK equity options which are physically settled. If your short call is deep ITM, the buyer might exercise early, forcing you to deliver shares (creating a short stock position if you don't own them). However, FTSE 100 index options are cash-settled - no physical assignment. For most beginners, stick to FTSE 100 or spread betting to avoid assignment complexity.

A naked call has unlimited risk - your loss is theoretically unlimited if the underlying rallies significantly. The long call in a Bear Call Spread caps your loss at the spread width. For a 200-point spread, your max loss is capped at ~£130 rather than unlimited for a naked call.

Use Bear Call Spread when IV is elevated (you want to sell expensive options) and you want time decay on your side. Use Bear Put Spread when IV is low (options are cheap to buy) and you expect a clear move lower. Bear Call Spread profits from the market staying flat or falling; Bear Put Spread requires the market to fall.

This is due to volatility skew. In equity markets, puts typically have higher implied volatility than calls (put skew) because of demand for downside protection. This means OTM puts are relatively more expensive than OTM calls, so Bull Put Spreads collect more premium at equivalent delta levels.

Generally no. Even profitable spreads should be closed by 7-10 DTE due to gamma risk. If FTSE is far below your short strike, you might let it expire worthless, but closing at 50% profit and redeploying capital is usually better practice.

If approaching your stop loss (spread doubles): close the position. If you want to stay in, you can roll up and out for a credit (move to higher strikes and later expiration). However, rolling is often worse than just taking the loss. Don't throw good money after bad.

Yes. Add a Bull Put Spread below current price. This creates an Iron Condor that profits from range-bound trading. You collect additional premium and widen your breakeven range. However, this also adds more risk on the downside.

You're at or near maximum loss immediately. This is why Bear Call Spreads carry significant overnight risk - positive news from US markets can gap FTSE above your strikes before you can react. Size positions assuming gaps can happen, and don't hold through high-risk events.

Check if call skew is elevated (calls relatively expensive vs puts). This typically happens after rallies when call demand increases. When call IV is elevated relative to put IV, Bear Call Spreads offer better risk/reward. Compare the premium available to equivalent Bull Put Spread before deciding.

Monitor aggregate portfolio delta. Multiple Bear Call Spreads create negative delta - beneficial if market falls but catastrophic if it rallies. Keep total delta within -0.20 to +0.20 of portfolio notional. Diversify across uncorrelated underlyings and consider combining with Bull Put Spreads for more neutral exposure.

Dividend risk is opposite for calls vs puts. If a stock is about to pay a dividend, ITM call holders may exercise early to capture the dividend. This means early assignment risk increases for ITM short calls before ex-dividend. Monitor ex-dividend dates and close or roll ITM call spreads before the ex-date.

If you own the underlying shares, a covered call gives you premium while still owning the stock. A Bear Call Spread is a pure directional bet. Use covered call if you want to keep the shares (with cap on upside). Use Bear Call Spread if you don't want stock exposure and want defined maximum risk.

IV spike hurts your position (short vega). If IV spikes significantly, your spread will show a paper loss even if the underlying hasn't moved. Don't panic - if your thesis is intact and the underlying is still below short strike, hold and let theta work. The IV spike makes your eventual profit larger when IV normalizes.