Bear Call Option Screener

Hi, and welcome to the Options Learning Center. I'm going to show you how to sell bear call spreads and use Barchart to get the most out of the strategy.

What Is a Bear Call?

A bear call spread, also known as the call credit spread, is a strategy that involves selling a call option for which the seller will receive a premium and buying a call option with a higher strike, for which the investor will pay a premium. The difference results in a net credit, which is why it's called a credit spread.

• Vertical Spread Strategy
• Sell OTM Call: Receive premium
• Buy OTM Call (Higher Strike): Pay premium
• Net Credit: The difference in premiums

Investors can profit from a moderately bearish outlook on the underlying asset while limiting potential losses. When selling a bear call spread, your goal is for the short call to expire unassigned or worthless, resulting in maximum profit.

Bear Call Spread Goal

• Short call option expires OTM
• Investor keeps the premium

A bear call trade reaches its maximum loss condition if the underlying's price ends above the long call's strike at expiration.

Trade Examples

Let's say you're looking for bear call spreads to sell. Barchart's platform allows you to scan the market for opportunities and to help you maximize profits.

Screening The Market For Potential Bear Call Trades

Barchart makes it easy to look for bear calls. To see potential trades using that strategy, simply navigate to Barchart.com, click on the Options tab, and then click on Bear Call Spread Screener.

You'll immediately get a results page detailing some potential bear call trades. This page gives you the most important information to start the trade, including strike prices for the trade legs, the breakeven price, max profit, and, most importantly, the OTM probability.

Since you'll hit maximum profit when the short call expires worthless or out of the money, OTM probabilities are my favorite metric to look at—or at least pay attention to.

Customizing the Screener

You may prefer to tailor-fit your screener to reflect different strategies and risk profiles.

To customize your screener, click on the Set Filters tab. You can select from dozens of filters, such as option details, analysis, and even underlying stock information.

As mentioned earlier, since bear calls profit when the short option expires worthless, I suggest focusing on the out-of-the-money (OTM) probability.

OTM probability represents the estimated chance that the trade will expire worthless—which is the goal of selling Bear Calls.

Higher OTM probabilities usually mean lower premiums, while lower probabilities can result in higher profits.

So, for this example, I'm going to screen for options with an 80% chance or higher that they'll expire OTM (expires worthless.)

Once your filters are set, click the "See Results" button.

Now you have a list of potential trades, and you can sort them by clicking on any column heading. For example, clicking on the OTM Prob column header will arrange the list from highest to lowest probability.

Also, note the maximum profit, loss, risk/reward percentage, and breakeven probability. The risk/reward percentage shows the ratio between loss and profit. Breakeven, or BE Probability, shows the chance of the trade ending BELOW the breakeven point, where it will start to gain profit.

Depending on your trading style, this can be valuable information indeed.

Screening For Bear Calls Using a Specific Underlying Asset

If you want to search for bear call trades with a specific underlying asset in mind, all you need to do is go to the stock or asset's Price Overview page on Barchart.com. Once there, look at the menu on the left and click Vertical Spreads under the Options Category.

Click on the Bear Call tab.

Suppose you think Tesla has had a big run-up, and prices will likely move sideways or down in the short term. In that case, you could sell a bear call spread.

The first thing you want to pay attention to is the expiration date. Look for trades that expire about a month or two away so you have time to adjust if necessary.

So, let's click on the expiration date dropdown and pick one. I will select August 16 for this example, but it can be any expiration you like.

Some of the options you see may already be in the money. Technically, they are fine to sell, but since they are already in the money, they could be assigned.

I prefer to sell out-of-the-money bear calls with a large chance of expiring worthless. So, I'll click the "screen" link. This takes me to the Bear Call Options Screener, selecting only TSLA options expiring August 16.

We want to sell out-of-the-money bear calls, so I'll add the "OTM Probability" filter in the "Set Filters" tab.

I'll enter 80% in this example. This means the results will all have an 80% chance of expiring out of the money.

I'll also set the Leg 1 Moneyness filter to "OTM" or out-of-the-money. This gives me results that between -25% and -5% out of the money.

And now, we have our results.

In this example, Tesla's current stock price is $241.20. In this trade, you'd sell the Tesla $270 strike call expiring August 16 for a premium of $13.50.

You'd also buy the $295 strike for a cost of $8.20.

The difference between what you received for the short call and what you paid for the long call is your credit, and of course, multiply it by 100 for every bear call you sold. That works out to $530.

$13.50 - $8.20 = $5.30

On this trade, 81.77% of the short call will expire out of the money, which is what you want.

Ultimately, this trade will expire either in or out of the money. Let's review both scenarios.

Bear Call Expires Out Of The Money (Profit)

Fast-forward to the expiration date. Let's say Tesla stock currently trades for $200.

Since it's lower than your $270 short strike price, both call options expire worthless, and the options will eventually drop from your account.

This trade hit its maximum profit condition.

Bear Call Expires In The Money (Loss)

On the other hand, if Tesla's price exceeds the $295 long call strike at or before expiration, the bear call enters its maximum loss condition, which is $1,970.

To calculate the maximum loss, we'll take the width of the spread, less the premium received, multiplied by 100.

$270 - $295 = $25.00
$25.00 - $5.30 = $19.70 x 100 = $1,970.00

Now, you might say $1,970 is a lot to risk, but remember, there's more than an 80% chance the trade will expire out of the money.

Also, you can always sell bear calls with less capital at risk by picking strikes that are closer together.

Profit/Loss Across Different Price Points

Here's a table detailing the profits and losses at different price points.

As you can see, as Tesla's price moves up or down, you'll ultimately end up with a profit or a loss. The maximum profit happens as long as Tesla stays below $270.

But if Tesla stock starts to trade above the breakeven point, this trade will start to incur a loss.

A bear call's breakeven point is calculated by adding the premium received to the short call's strike price. So, you'll make money on this trade as long as Tesla trades at or below $275.30 at expiration.

If Tesla trades above the breakeven, you'll now start to incur losses, up until the $295 long call strike - at which point, you'll hit the maximum loss of $19.70 a share or $1,970 per contract.

Pros/Cons

The biggest advantage to selling bear spreads is the ability to sell options with a small account because the capital required is usually only the maximum loss amount, which, in this case, was $1,970. Investors can also earn a premium selling bear calls with limited and defined downside risk. And finally, this strategy can be profitable in a neutral or slightly bearish market, allowing investors to benefit from time decay.

However, there are some drawbacks to consider. The bear call spread has limited upside potential, meaning the profit is capped at the net premium received. And, if the underlying price trades above the long strike price, the investor will experience a maximum loss condition.

Bear Call Spread Benefits

• Known Profit/Loss: Defined at trade start
• Capital-Efficient: Results in net credit

Bear Call Spread Drawbacks

• Limited Profit Potential
• Requires Precise Market Predictions

Conclusion

Bear call spreads are a generally safe way to earn premiums during moderate bear markets, but as they say, there's no free lunch on Wall Street - there are always some risks in trading. Thankfully, you can improve your odds by using Barchart's Bear Call Option Screener and supplement your trading knowledge through the Barchart Options Learning Center.