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Seasoned VeteransNeutral to Bearish
Short Call Spread
Overview
Also called a 'bear call spread' or 'credit call spread'. You sell a call at a lower strike (collecting premium) and buy a call at a higher strike (for protection). You profit if the stock stays below the short strike at expiration.
Max Profit
Net premium received
Max Loss
Difference between strikes - Net premium received
Breakeven
Lower strike + Net premium received
Structure
Short 1 lower-strike Call + Long 1 higher-strike Call (same expiry)
Risk Profile
Limited profit (premium received). Limited loss (difference in strikes minus premium).
When to Use
When you expect the stock to stay flat or decline modestly. When you want to collect premium with defined risk. Income-generating strategy with a bearish to neutral outlook.