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Call credit spread playbook

A practical walk-through of the call credit spread (bear call spread): useful when you do not want unlimited upside risk, but you still want to collect a credit.

Not financial advice

Educational draft only — not a recommendation to trade any symbol or size.

When this trade matches your story

You collect a credit when your thesis is: the stock should stay below my short call. Often that is a name that already looks extended, expensive, or unlikely to keep ripping higher in the near term — still a thesis you must write down, not a vibe.

If you need the stock to rise, this is the wrong tool. Consider PCS or no trade.

Why a spread instead of a naked short call?

A naked short call can lose a theoretically unlimited amount if the stock keeps climbing. [verified] The long call in a CCS is the cap.

Structure (quick refresh)

  • Sell call at \(K_s\)
  • Buy call at higher strike \(K_h\)
  • Max profit \(\approx C\)
  • Max loss \(\approx W - C\) where \(W = K_h - K_s\)

Charts: Credit-spread payoffs.

From idea to order — seven steps

1. Thesis

Why will price not melt up through the short call? Journal it.

2. Liquidity

Same bar as PCS — skip option chains you cannot exit cleanly.

3. Expiration

Monthly bias; weeklies only with tighter size.

4. Strikes

Short call in a delta band you already chose (common teaching range ~0.15–0.30 absolute delta). [verified] as heuristic. Long call sets width and max loss.

5. Size

Use max loss and portfolio heat — not “percent of the account sitting in premium.” Policy numbers live on the risk page.

6. Events

Respect the earnings / event blackout in your policy.

7. Journal

Include why you chose CCS rather than PCS (or why both appear on different names).

If the trade goes wrong

Same honest menu as PCS: close, roll, or hold under rules you wrote when calm. Strong trends can run farther than a small credit “feels like” it should allow.

Anti-patterns

  • Naked short call because “I almost sold a spread”
  • Many correlated CCS positions that are really one big tech bet
  • Ignoring that a squeeze can tag your short strike quickly

What to do next

Risk policy proposal · Defined-risk overview

Sources

Not financial advice. Verify broker rules yourself.