bear call spread

How to Find the Best Bear Call Spreads

Do you know you can increase the returns of bearish trades by selling options?

Today SlashTraders will show you how our trading system uses the Bear Call Spread Screener to find heavily overvalued and downtrend stocks. Then trade high probability and high return bearish options to delta hedge and diversify risks.

What Is a Bear Call Spread?

A Bear Call Spread works by combining a short Call and a long Call at different strike prices that expire at the same time.

Let's review the profit analyses of selling and buying Call options. We receive a premium when we short a Call option. If the underlying price goes down we make a profit.

short call MRNA
We receive a premium when we short a Call option and we profit from a bearish outlook.

Although a Naked Call is easy to execute, if the underlying price goes up, the maximum loss is unlimited.

We pay a premium when we long a Call option. If the underlying price goes up we make $100 for every $1 increase.

long call MRNA
We pay a premium when we long a Call option and we can make $100 for every $1 increase in the underlying.

But if the underlying price goes down instead, the value of the Call option expires worthless.

When we combine a short Call and a long Call at different strike prices we create a Call Spread. Since we want to trade bearish, the strike price of the short Call would be lower than the long Call.

sell call spread MRNA
The strike price of the short Call would be lower than the long Call in a Bear Call Spread.

Compare this to a short Naked Call, a Bear Call Spread can limit the maximum loss if we are wrong about the direction. The Return on Capital is also higher for a Bear Call Spread.

call spread vs call
Compared to a short Call option, a short Bear Call Spread has a higher Return on Capital.

On the other hand, a short Naked Call has a higher breakeven price, leading to a higher probability of profit.

What Are the Key Points to Profitable Bear Call Spreads?

When selling Call Spreads, we have negative delta, so we want the stock price to go down to decay the option value, then we can buy to close the trade.

Delta is the changes to options price with respect to changes in the underlying price.

If the stock price stays below the short Call strike, we can wait for the options to expire worthless for a profit.

Maximum loss of a Bear Call Spread = width of the Call strikes x 100 - premium collected

Buying Power = maximum loss

So when the Call strikes' width stays the same, a more negative delta leads to a higher premium, lower maximum loss and higher returns.

Let's look at two Moderna Bear Call Spreads with the same $10 widths that expire next month.

delta vs ROC
The Bear Call Spread with a more negative delta has a greater Return on Capital.

When the short Call is at -0.54 delta, the maximum return is 77%, while the short Call with -0.34 delta has a maximum return of 41%.

The Importance of Delta Hedging

Even though we expect the stock market to be bullish over the long term, we can use negative delta trades like Bear Call Spreads to delta hedge, create a delta neutral portfolio, and reduce risk exposure of our positions when market crashes.

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How to Use the Bear Call Spread Screener to Find the Best Bearish Trades

The Bear Call Spread Screener uses chart analysis to find overvalued stocks with a high probability of a downward correction that we can sell Bear Call Spreads to open.

We want to find heavily overvalued underlying that have a high probability of going down.

  • The options screener uses fundamental analysis to calculate the Fair Value of the underlying then compare that with the Last value to find the potential Upside of the stock. When the Upside is less than -30%, we have high confidence in a bearish outlook.
  • Short Signal Price shows the topped out price from our technical analysis. So we know the stock price will not rise beyond this price in the short term.
  • Short Days indicate the number of trading days has passed since the last short signal. As soon as the short signal appears, there is a high probability of a bearish move.
  • We also need to avoid Ex-Dividend Date before options expiration. On one hand Ex-Dividend Date usually lead to rising prices and assignment. On the other hand, if you get assigned, you might need to pay dividends for shorting the stock.

Since we are strongly bearish about our trade, we can use -0.50 delta ATM Bear Call Spread to calculate Return on Capital. This gives us the highest return when we are right, and the lowest maximum loss if we are wrong.

So we can look at the screener for the best ATM Bear Call Spread ideas.

bear call spread columns
We sort Upside by descending order to find the most overvalued stocks, then use Short Days to find the most recent down-trending opportunities.

The Best Bear Call Spreads Right Now

By combining Upside and Short Days, we see ENPH is one of the most overvalued stocks, and has a short signal 8 trading days ago. It doesn't have an Ex-Dividend Date coming up. So it has a high probability of a bearish trend.

bear call spread screener enph
We combine Upside and Short Days to find the ENPH as one of the best ATM Bear Call Spreads.

By checking the Enphase price trends, we confirm ENPH reached a high point at $220, similar to the Short Signal Price in our Bear Call Spread list, 8 trading days ago, and has been bearish ever since. We expect ENPH to stay below Short Signal Price in the short term.

enph short signal price trend
ENPH reached the Short Signal Price $220 8 trading days ago, and has been bearish since.

We can sell an ENPH ATM Call Spread option that expires in 35 days. If the ENPH stock price does not rise before expiration, we have the potential to profit 86% from the trade.

enph atm bear call spread
An ENPH ATM Call Spread option that expires in 35 days has the potential to profit 86% from the trade.

Now you know how to use the Bear Call Spread Screener to find overvalued stocks that are trending downwards. Remember to use the screener often to find the best Bear Call Spreads to add bearish trades and delta hedge your portfolio to diversify your risks.

How to Roll a Bear Call Vertical Spread?

If the stock price is up with less than 14 days to expiration, we can roll the losing Call Vertical Spread to next month and wait for the stock price to fall in the future.

If NFLX's Bear Call Credit Spread is losing due to a rise in stock price while we maintain a bearish outlook, we can roll the contract forward.

netflix call spread loss
Stock price rises causing the Bear Call Spread to lose.

When rolling a Bear Call Spread, we need to close the existing Call Credit Spread, and sell to open a new Call Spread that expires next month.

roll netflix call spread
Close the current Call Credit Spread and sell to open a Call Spread that expires next month.

We can consider widening the Call strike prices to increase the premium received to offset our existing losses.

netflix call spread next month
A longer date Bear Call Credit Spread that uses a longer time value and wider strike prices to offset the loss.

As a result, we create a longer date Bear Call Spread with additional credit from longer time value and wider strike prices. Then we can wait for the NFLX stock price to fall back to a bearish trend and profit from the new trade.

Now you know how to trade Bear Call Spreads, you can use the Bear Call Spread Screener to find the best bearish entry points.

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6 thoughts on “如何找到高機率的看跌Call Spread垂直價差做Delta對沖”

    1. The Bear Call Spread Screener lets us find overvalued and downward-trending underlying that we can be confident of trading bearish.

    1. 考量到看跌Call Spread Screener已找到被嚴重高估和正在走下坡的股票
      我們可以賣ATM Call Spread垂直價差等股價下跌獲利

  1. 謝謝分享看跌的交易方式
    如果股票市場是長期看漲,什麼時候會需要交易看跌的垂直價差?

    1. 通常看跌的交易方式是要分散風險,例如現在股市可說是被高估了,所以找到一些被高估而且在下降走勢的股票就很適合看跌交易
      如果大盤走下坡,至少portfolio中有些交易會獲利
      可參考以下連結看現在股市是否被高估了
      https://www.currentmarketvaluation.com/

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