Bear call credit spread explained

Options trading is a term frequently used in trading of stock options in an exchange market. Option trading is about trading the options that are offered on these stocks. In this field involving money, options can be classified in to two different types; and they are the put options and call options. By cleverly utilizing both classes, you are giving yourself better chances of getting almost limitless combination of the potential strategies for option trading. With option trading and some strategies, you can earn money.

In the field of exchange market and as a trader, you have so many alternative ways to earn or generate income, not just the typical way wherein you buy stocks at low price then sell it at high price. One way is the so-called bear call credit spread. To clearly know what does the term means, defining it word for word would be best:

• Bear – this term refers to the stance the trader has. The stance is called bearish. In this situation, trader typically identifies the trend as moving down, and it will do worse and remain flat all through out the trade.
• Call – in comparison to put options, trader now makes a call option as his or her position.
• Credit – implies that the trade is able to generate net income especially when the trade is started in. This is the opposite of many trades that typically start through a cash outlay or debit.
• Spread – this is the price difference between the two strike prices. The trader must take his or her position about the spread.

Combining all the terms, you can see that this term is a series of events in option trading. Bear call credit spread seeks to create income by trading the bearish charts. Spread is the one responsible for the limitation of total income as well as the total risk. Generation of the net income is done when a single call option has been sold for higher price in comparison to that of the call option, which is bought before selling. The credit comes from the net difference in the price.

The bear call credit spread technique is an option trade method that is able to generate net income while a trade is happening. Given the right conditions, you can keep all the net profit until the expiration of the options.

Jeff Ziegler, author of this article is also interested in Credit spread options and recommends you to please check out some Credit spread strategies if you liked reading this information.