Selling Premium in a High-Volatility Market: Bear Call Spread on XME
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Volatility is back.
With the VIX trading around 30, fear has crept back into the market. That’s good news if you’re a premium seller. Simply stated, when implied volatility is high, options are overpriced—and we get paid more to sell them.
That’s exactly the setup we’re looking at right now in XME, the SPDR S&P Metals & Mining ETF. Tim has mentioned, in numerous posts, his affinity for the current technical setup in XME.
I would like to bolster his stance by walking through why it’s attractive as an options premium seller, and how I’m trading it using a simple, defined-risk strategy: the bear call spread.
Pairing a bear call spread with a long put allows traders to lean into both probability and potential. The bear call spread brings in immediate income with a high probability of success—capitalizing on elevated volatility and technically beneficial conditions. Meanwhile, the long put provides directional exposure with unlimited profit potential if the underlying breaks down hard. Used together, the income from the spread can offset some or all of the cost of the put, effectively financing a portion of your bearish thesis while still keeping overall risk defined.
This combination gives you tiered exposure: the bear call spread profits if the stock simply stalls or moves modestly lower, while the long put kicks in if the move accelerates to the downside. You don’t need to be exactly right on timing or magnitude—just positioned well. It’s a structure that adapts to market conditions rather than relying on a single outcome, offering both flexibility and leverage in volatile environments.
Why XME? Why Now?
XME is currently trading around $54.73 with implied volatility over 50% and an IV Rank that is firmly in high-volatility territory. And when IV is high, selling options—especially out-of-the-money credit spreads—gives us a clear statistical edge. This isn’t about making a directional call. It’s about taking advantage of inflated options prices and stacking the odds in your favor.
Bear Call Spread Setup
Here’s the potential trade I’m looking at:
- Underlying: XME
- Current Price: $54.73
- Strategy: Bear Call Spread (Short Vertical Call Spread)
- Expiration: June 20, 2025 (60 Days to Expiration)
- Sell Call: $59
- Buy Call: $64
- Net Credit: ~$1.00
- Max Risk: $4.00
- Max Return on Risk: 25.0%
- Probability of Profit: ~70%
The goal is simple: as long as XME stays below $59 by expiration, you collect the full credit. However, my preference is to take the trade off early when I can lock in 50% to 75% of the premium sold. And with a 70% probability of success, you don’t need a big move—you just need the stock not to rally past $59, or 7.8%.
Why This Works in a High-IV Environment
When volatility is elevated, most traders often overpay for options—that’s when we step in to sell those inflated options as part of a spread.
The beauty of a bear call spread is that you can be wrong in direction and still win. The stock can drift higher, stall out, or even nudge above your short strike—and you can still walk away with a profit if you manage it correctly.
Managing the Trade
Here’s how I manage a bear call spread:
- Profit Target: I usually look to take profits when I’ve captured 50–75% of the credit.
- Position Size: Risk no more than 1–5% of total capital per trade.
- Stop-Loss: If the spread widens to 1x–2x the credit received (about $2.00–$3.00 in this case), I exit the trade.
This is a high-probability, low-stress (in most cases) way to approach trading. You know the max risk. You know your potential return. And you’ve structured the trade to benefit from both time and volatility.
Bottom Line
A bear call spread in XME is a textbook setup in this environment:
- You’re selling rich options premium.
- You have a high odds of success.
- You’re not relying on a big move to win.
These are the kinds of opportunities I wait for—high-IV setups with a clear edge. No need to overcomplicate it. Keep it simple. Trade the probabilities. Let time and structure work for you.
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