3: Credit Call Spread

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CREDIT CALL SPREAD

A Credit Call Spread, or Bear Call Spread is a potential income strategy that sells a call, while simultaneously buying a higher strike call in the same expiration.

An investor with a somewhat bearish view might use a Credit Call Spread when looking for a defined risk strategy that sees profits if a stock stays below a certain breakeven level.

The strategy might also be used when long stock. Instead of a Covered Call, an investor may be willing to accept less potential income in exchange for being able to participate in outsized gains above the spread.

Maximum Gain from the Credit Call Spread may be realized if the stock finishes below the spread, while losses may occur if the stock moves above the breakeven. A Maximum Loss would occur with the stock above the spread at expiration.

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