Call Bear Spread

Components

Short one call option with a low strike price and long one call option with a higher strike price.

Risk / Reward

Maximum Loss: Limited to the difference between the two strikes minus the net premium.

Maximum Gain: Limited to the net premium received for the position. I.e. the premium received for the short call minus the premium paid for the long call.

Characteristics

When to use: When you are mildly bearish on market direction.

A call bear spread is usually a credit spread. A credit spread is where the net cost of the position results in you receiving money up front for the trade. I.e. you sell one call option (receive $5) and the buy one call option ($4). The net effect is a credit of $1.

This type of spread is used when you are mildly bearish on market direction. Same idea as the "Call Bull Spread" but reversed - i.e. you think the market will go down but think that the cost of a short stock or long put is too expensive.