Markets don’t rise in neat, predictable arcs. They stumble forward, lurch sideways, and sometimes drop like a stone. When implied volatility spikes, traders who can remain calm and methodical find opportunity amid the turbulence. One such opportunity? A bear call spread SPY.
A bear call spread is a simple, structured approach: Sell a call option at a strike price above the current market price and hedge the risk by buying a higher-strike call. The objective? Collect premium while keeping losses defined. Even if the underlying asset drifts upward, the trade offers a buffer before losses begin. And if prices slip lower, profits come faster.
With SPY trading at $566.88, the setup for another bear call spread looks enticing.
Structuring the Trade
While the mechanics of a bear call spread stay the same, its parameters should adapt to the moment. Here, we’re targeting an expiration about 60 days out (not intending on holding it until expiration)—long enough for time decay to accelerate but not so long that uncertainty compounds. The goal? A high-probability setup with an 80%-85% chance of success.
The first step is identifying a call option with a strike price near the upper bound of the expected move. The expected move is currently +/- 38 which puts the upper bound of the range at 605.
Based on probability metrics, the 605 strike call fits well, with a 87.02% chance of expiring worthless. If your trading platform doesn’t show probabilities, delta can serve as a rough guide—a delta near 0.20 often signals an 80% likelihood of success.
SPY’s expected range for this expiration stretches from 605 to 529. Since this is a bearish position, the upper limit is what matters or the 605 strike.
Trade Details
Here’s how the trade shapes up:
- Sell to Open SPY May 16, 2021, 605 Call
- Buy to Open SPY May 16, 2021, 610 Call
- Total Credit Received: ~$0.70 ($70 per contract)
- Probability of Success: 87.02%
- Maximum Risk: $4.30 ($430 per contract)
- Maximum Potential Return: 16.3%
As long as SPY remains below 605 at expiration, the premium stays in our pocket. But the plan isn’t to hold until the last moment. Instead, we’ll look to close the position when the spread value falls by 50%-75%, securing profits before risk re-enters the picture.
For instance, if the spread was sold for $0.70, we would aim to start buying it back between $0.35 and $0.15.
Managing Risk and Position Sizing
Trading isn’t about taking outsized risks—it’s about surviving to trade another day. That starts with position sizing. Risking 1%-5% of portfolio capital per trade ensures longevity, even through a rough patch.
A hard stop-loss at 1-2 times the initial credit received keeps small losses from growing into painful ones. In this case, if the spread’s value rises to $1.40, it’s an exit signal. Some traders prefer to roll or adjust positions. I’d rather cut the loss and move on to the next opportunity.
The Bottom Line
Markets are never static, and volatility is a trader’s best friend—if managed wisely. Bear call spreads provide a disciplined way to extract income from heightened volatility, allowing traders to profit even when their directional bias isn’t perfect.
This isn’t about betting big on a single trade. It’s about stacking small, high-probability trades—each one guided by probability, disciplined risk management, and a willingness to take profits early.
Stay patient. Stay systematic. And let the math work for you.
Trade Smarter. Cut Through the Noise.
If you’ve been around the options trading world long enough, you know the drill—bold claims, endless upsells, and newsletters packed with more marketing than meaningful insight. I built The Option Premium to be different.
✅ No hype. No gimmicks. No fluff.
✅ Just one powerful, free email each week.
✅ Actionable trades, deep research, and market insights that matter for options traders.
Every issue is designed to help you trade with more precision, patience, and probability—without the distractions.
📩 Join for free today and see the difference: [The Option Premium]
Probabilities over predictions,
— Andy Crowder
