In this article, I will go over three possible outcomes for a Bear Call spread at the expiry. Those scenarios involve the price of the underlying closing within the spread, above the sold call, and below the sold call.

I have included the chart here, as I usually do for my real trades, but I choose to white out the exact ticker. Thus, when referencing the underlying, I will use that worn out cliché of XYZ.

The daily chart of XYZ below shows (with a blue oval) the point of the initial entry. I have also marked on the chart in green letters the words, "Long Entry." It is at this point that the student went long. In hindsight, we could observe that from the technical analysis view point, the XYZ at the time of the entry was coming to a resistance, yet that was the exact place where the student went long.

[For those readers who need the refresher how a Bear Call works and what is involved, I suggest that you read my article, "Bear (Call) at Work."]

The final outcome of turning it into a Bear Call has produced the following trade:

BTO + 100 Mar 14c @ -0.505 (OTM)
STO – 100 Mar 13c @ +0.70 (ATM)
Max P (is the difference) + 0.195
Max L (width Spread 14c-13c) 1.00 –Max P
Max L -0.805
ROI = Max P/Max L = .195/.805 = 24.2 %
BEP = sold strike + Max P = 13.00 + 0.195
BEP = 13.195

Oddly enough, the moment the student had turned his initially Bullish trade into a Bearish trade, the market had reversed and started rallying up. Now the trader is sitting in a trade that he completely does not understand. Moreover, due to the huge contract size, the broker has placed the maintenance on his existing position, in this case ten thousand dollars. This is a huge chunk of change to be sitting unused.

Having presented all the facts, let us go over three possible outcomes which could take place at the expiry. They are in fact simple and Figure 2 provides the visual presentation of them.

Once again, I hate oversimplifications but often when explaining something it is useful to use them as a starting point. Now let us turn our attention to each of those three scenarios and dig a bit deeper into them.

Scenario # 1 (Good outcome) XYZ \$13.96

Bottom line = + 0.195

The best possible outcome, keeping the maximum profit (Max P) or 0.195 and the maintenance on our account is lifted after the expiry.