If you expect the stock price to drop moderately in the future, but there is limited room for decline, you can use a bearish call option spread strategy.

How to build

● Sell call 1

● Buy call 2

Except for the exercise price of call1 <the exercise price of call2, the subject, quantity, and expiration date both calls are same< p></the>

Strategy Overview

When you expect the stock market to fall moderately to a certain support level in the future, you can use the support level to sell at the exercise price and buy an equalization call with a higher price to construct a bearish bullish option spread combination.

A bearish bullish option spread is a combination of strategies with limited return and risk — the maximum benefit is the net option premium, and the biggest loss is the difference between the high and low options price plus the net option premium.

In addition to the limited benefits and risks of the combination itself, you can also select real or fictitious calls according to your risk appetite to construct this combination, so as to more accurately adjust the benefits and risks.

Theoretically speaking, when you use two real value calls to construct a combination, the benefits and risks are relatively low; if you choose two false value calls, the benefits and risks are relatively high; one real value plus one false value is a moderate combination of return and risk.

As far as volatility is concerned, the spread of bullish options in a bear market is based on “moderate” downside expectations and is a strategy to bearish future market volatility.

Furthermore, theoretically, under the same circumstances, the call price of a low bid price is greater than the call price of a higher bid price, so when the price spread of a bear market bullish option is established, a call with a lower bid price and a call to buy a higher price, the net option premium is positive, and there is a net inflow on the capital book. Therefore, bear bullish spread options are also called bear bullish credit spread (credit call spread).

Different fund book conditions will affect the use of margin. Although capital books will change quickly as stock prices change, this may not have much impact on small-capital traders, but traders or institutional traders with large capital investments will tend to consider the overall impact of this aspect.

Risks and benefits

● Break-even point

Stock price = low exercise price+net option premium

● Maximum profit

Maximum profit = net premium

● Maximum loss

Maximum loss = high exercise price - low exercise price - net option premium

Examples of calculations

Assuming that in the US stock market, TUTU's current stock price is $58. You expect TUTU to drop slightly to $50 in the future, so you have constructed a bearish bullish options spread strategy:

Sell 1 call with an exercise price of 50 US dollars at a price of 5 US dollars;

Buy 1 call with an exercise price of $58 at a price of $2;

The two options have the same expiration date, so when they expire, your earnings will be as follows:

Remarks:

1. The article uses stocks as option targets to explain strategies. The actual investment bid can also be stock indices, futures contracts, bonds, currencies, etc.;

2. Unless otherwise specified, the options in this article refer to on-market options;

3. The TUTU company in the article is a virtual company;

4. None of the relevant calculations in the article take into account handling fees. In actual options investments, investors need to consider transaction fees.