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Short Call Spread


An option trading strategy that is constructed by selling a call option at a given strike price and buying a call option at a higher strike price, both on the same underlying and with the same expiration month. An investor would seek such a strategy when the underlying is expected to remain neutral if the lower-strike option is out of the money.

This spread obligates the holder to sell the underlying at the lower strike price upon exercise by the buyer, while giving him at the same time the right to buy the underlying at the higher strike price. The maximum potential profit is limited to the initial payout (the net credit) received at the start of trade. However, the maximum loss is limited to the difference between the lower and higher strikes.

The short call spread is alternatively called a bear call spread.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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