Call Bear Spreads
Chapters in this video
- 0:00 Trey the Trader's problem: short with a safety net
- 1:12 Meet the call bear spread: structure and cash flow
- 2:40 Building Trey's spread: sell 100 call, buy 110 call, credit of 4
- 3:55 Maximum loss and the protective long call
- 4:54 Breakeven and the must-know arithmetic check
- 5:47 Exam trap 1: spread to narrow, not widen
- 6:55 Exam trap 2: mirror image of the call bull spread
- 7:51 Rapid-fire exam recap
What this video covers
- How to build a call bear spread: sell the lower-strike call, buy the higher-strike call, same expiration, for a net credit
- Why the initial net credit is the maximum profit, and when it is reached (futures at or below the lower strike)
- How to calculate maximum loss using the strike difference minus the net credit, and why the long call caps the risk
- The breakeven formula for a call credit spread (lower strike plus net credit) and the arithmetic check that max profit plus max loss equals the strike difference
- Why the NFA annotates this strategy "spread to narrow," and how the exam baits you with "spread to widen"
- The debit-credit mirror: how swapping the legs of a call bull spread flips direction, cash flow, and required spread behavior
- How to spot the three classic exam traps: calling it a debit position, reversing the narrow-widen logic, and flipping the max profit and max loss sizes
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