How To Sell Bear Call Spreads: Beginners options tutorial on how to make money when stocks drop

Summary

In this video, the speaker discusses strategies for making money in the stock market, particularly during downturns like the one experienced in September. They focus on selling bear call spreads, a technique used to profit from a market decline or sideways movement. The speaker outlines the process of setting up a bear call spread, which involves selling an out-of-the-money call option and buying a deeper out-of-the-money call option to hedge. They emphasize the importance of having sufficient capital to cover potential losses and highlight the historical tendency of the market to decline in September. The video also covers the potential pros and cons of this strategy, including the statistical favorability of the trade and the need for a capital-intensive approach.

Takeaways

• 📉 The video discusses strategies for making money from the stock market, particularly during downturns like the one experienced in September.
• 🐻 The presenter introduces the concept of selling bear call spreads as a strategy to collect premiums while waiting for market uncertainty to pass.
• 💰 It's emphasized that this strategy is not a 'get rich quick' scheme, but can yield modest returns, such as a couple of hundred dollars from selling contracts.
• 💼 The presenter advises ensuring that one's portfolio can handle this strategy and having sufficient capital to cover the purchase of 100 shares of the underlying stock if needed.
• 📈 The video references historical data suggesting that September tends to be a down month for the stock market, with an average drop of around 0.8%.
• 📊 Technical analysis of the S&P 500 is provided, noting a potential retrace upwards to previous support levels, despite the current downward trend.
• 🔄 The concept of setting up a bear call spread involves selling a call option contract first and then buying an out-of-the-money call option contract to act as a proxy for 100 shares.
• 📆 The video provides a step-by-step guide on how to set up a bear call spread using the thinkorswim platform, with Google (GOOGL) as an example.
• 🤑 The presenter outlines two scenarios for the expiration day: if the stock price stays below the strike price, or if it rises and triggers a buy stop order to cover the position.
• 🚫 The video concludes with a discussion of the pros and cons of setting up a bear call spread, including the need for capital to cover potential share purchases and the risk of gap-ups in stock prices.

Q & A

What is the main strategy discussed in the video for making money from the stock market?

The main strategy discussed in the video is selling bear call spreads, which involves collecting premiums by selling call options contracts while expecting the stock market to drop or trend sideways.

Why is it important to have capital to cover 100 shares of the underlying stock when selling bear call spreads?

Having capital to cover 100 shares of the underlying stock is important because it allows the trader to convert the bear call spread into a covered call if the stock price rises above the strike price, thus managing the risk of potential losses.

What does the video suggest about the stock market's typical performance in September based on historical data?

The video suggests that historically, September has often been a down month for the stock market, with an average drop of around 0.8 percent based on data from 1950 to 2022.

How does the speaker plan to handle the situation if the stock price rises above the strike price of the bear call spread?

If the stock price rises above the strike price, the speaker plans to buy 100 shares of the stock at a specified price (buy stop order) to cover the potential obligation from the sold call option contract.

What is the significance of the RSI level mentioned in the video in relation to the stock market's behavior?

The RSI level of around 33 mentioned in the video is significant because it is a level at which the S&P 500 has historically tended to bounce back, indicating potential reversals in the market trend.

Why does the speaker recommend watching cover call videos before this video on bear call spreads?

The speaker recommends watching cover call videos first because the concepts and strategies involved in setting up a bear call spread are similar to those of a covered call, and understanding the latter will make the former easier to grasp.

What is the role of the Federal Reserve's interest rate decisions in the stock market's performance as discussed in the video?

The video discusses that the Federal Reserve's decision to keep interest rates high to tame inflation has led to a negative reaction in the stock market, causing many stocks to sell off.

What is the 'Santa Claus rally' mentioned in the video, and how does it relate to the stock market's performance in November and December?

The 'Santa Claus rally' is a term used to describe the typical rise in the stock market during November and December, where portfolio managers often reallocate portfolios and buy more shares to show positive performance to clients before the end of the year.

How does the video describe the process of setting up a bear call spread using Google as an example?

The video describes setting up a bear call spread by first buying an out-of-the-money call option contract to act as a proxy for 100 shares, then selling a call option contract at a higher strike price to collect a premium. The goal is for the stock price to not reach the higher strike price by expiration.

What are the pros and cons of setting up a bear call spread as outlined in the video?

Pros include the strategy being statistically favorable as it can profit from the stock going down, sideways, or not rising enough by expiration. Cons include the need for capital to cover 100 shares if the stock rises, the risk of a gap up causing the buy stop order to be triggered too late, and the strategy being more capital-intensive.

Outlines

00:00

📉 Stock Market Strategies During Downturns

The speaker introduces the concept of making money from the stock market, particularly during downturns like the one experienced in September. They discuss the strategy of selling bear call spreads, which involves selling contracts to collect premiums while awaiting market stability. The speaker emphasizes the importance of having the necessary capital to cover potential obligations and suggests watching previous videos on covered calls for better understanding. They also highlight the need to watch the entire video to grasp the pros and cons of setting up a bear call spread. The video then delves into the current stock market situation, influenced by the Federal Reserve's decision to maintain high interest rates to combat inflation, leading to a negative reaction and a downward trend in the market. The speaker uses the example of the SPY ETF to illustrate the market's performance and potential support levels, suggesting a possible market retrace. They also reference historical data to show that September has typically been a down month for stocks, while October and the subsequent months may see positive returns, setting the stage for the bear call spread strategy.

05:02

📈 Setting Up a Bear Call Spread with Google as an Example

The speaker demonstrates how to set up a bear call spread using Google as an example. They explain their personal bias towards Google's short-term decline despite a long-term bullish outlook. The strategy involves selling a call option contract at a strike price the speaker doesn't expect to be reached within a set timeframe, in this case, 145 dollars. To execute this, the speaker first buys an out-of-the-money call option to act as a proxy for 100 shares, allowing them to sell the in-the-money call option and collect the premium. The speaker guides viewers through the process on the thinkorswim platform, showing how to select the appropriate expiration dates and strike prices. They also discuss the importance of setting a buy stop order to purchase 100 shares if the stock price rises接近 the strike price, ensuring they can fulfill the contract if necessary. The video provides a step-by-step guide on how to carry out this trade, including the calculations involved and the rationale behind each step.

10:02

🔍 Contingency Planning for Bear Call Spreads

The speaker outlines the possible outcomes on the expiration date of the bear call spread. If the stock price remains below the strike price, both the bought and sold contracts expire worthless, allowing the trader to keep the entire premium. This scenario is statistically favorable as it allows for profit regardless of the stock's movement. The speaker also addresses the second scenario where the stock price rises and triggers the buy stop order, necessitating the purchase of 100 shares. In such a case, the trader can still profit from the difference between the buy and sell strike prices, in addition to the premium collected. The video emphasizes the importance of having capital to cover the potential purchase of shares and the trader's willingness to hold the shares long-term. The speaker also mentions the potential risks, such as a gap up in the stock price that could lead to buying shares at a higher price than anticipated.

15:02

🚀 Pros, Cons, and Personal Strategies for Bear Call Spreads

The speaker concludes by discussing the pros and cons of setting up a bear call spread. They highlight the statistical favorability of the trade, the potential for profit in various market conditions, and the opportunity to convert the spread into a covered call if the stock rises. However, they also acknowledge the risks, including the possibility of an unrealized loss if the stock price drops after purchasing shares, and the capital intensity of the strategy. The speaker shares their personal approach to setting up bear call spreads, emphasizing the importance of being bullish on the long-term prospects of the stock. They invite viewers to ask questions and suggest topics for future videos, encouraging engagement and further learning. The video ends with a call to like and subscribe for more content.

Keywords

💡Bear Call Spread

A bear call spread is an options trading strategy used when an investor anticipates a decline or sideways movement in the price of an underlying asset. In the video, the speaker discusses setting up a bear call spread as a way to profit from a potential drop in the stock market. The strategy involves selling a call option while simultaneously buying another call option with a higher strike price, creating a 'spread'. The goal is to profit from the premium received from selling the call option, which is collected if the stock price does not rise above the strike price by the expiration date.

💡Premium

In the context of options trading, a premium is the price an options buyer pays to the seller for the rights granted by the option. The video script mentions collecting premiums as a key aspect of the bear call spread strategy. The speaker explains that by selling a call option contract, one can collect a premium, which is a form of income for the seller. This income is a significant part of the strategy's profit potential, as it is earned regardless of whether the market moves up, down, or stays the same.

💡Covered Call

A covered call is an options strategy where an investor holds a long position in an asset and sells call options against it. The video script references covered calls as a related strategy to bear call spreads. The speaker mentions the possibility of converting a bear call spread into a covered call if the underlying stock's price rises, which would involve buying the underlying shares to cover the sold call option. This conversion can be a strategic move to lock in gains or mitigate losses.

💡Expiration Date

The expiration date is the date when an options contract becomes invalid, after which it can no longer be exercised. In the video, the expiration date is crucial for the bear call spread strategy. The speaker discusses choosing an expiration date 30 to 45 days away and later opts for a further out expiration to maximize the extrinsic value of the option. The outcome of the trade is determined by the price action of the underlying asset relative to the strike price by this date.

💡Strike Price

The strike price, also known as the exercise price, is the price at which an option holder can buy (call option) or sell (put option) the underlying asset. The video script frequently mentions the strike price in relation to setting up a bear call spread. The speaker selects a strike price that they believe the stock is unlikely to reach, selling a call option at this price to collect a premium, with the expectation that the stock will not exceed this level by the expiration date.

💡Theta

Theta in options trading represents the rate at which the option's price decays as the expiration date approaches. The video discusses how Theta works in the context of a bear call spread, where the seller hopes for a sideways or downtrend in the stock to profit from the time decay of the option's value. The speaker explains that if the stock price does not significantly increase, the options' Theta will work in their favor, allowing them to keep the premium as the options expire worthless.

💡Federal Reserve

The Federal Reserve, often referred to as the Fed, is the central banking system of the United States. In the video, the speaker mentions the Fed's decision to keep interest rates high to combat inflation as a factor influencing the stock market's downturn. This decision can impact investor sentiment and market volatility, which are considerations for those using options strategies like the bear call spread.

💡RSI (Relative Strength Index)

The Relative Strength Index is a momentum oscillator that measures the speed and change of price movements. In the video, the speaker refers to the RSI to analyze the potential for a market bounce. They note that the S&P 500 has historically bounced off certain RSI levels, suggesting that the index might rebound from oversold conditions, which could be relevant for the success of a bear call spread strategy.

💡Gap

A gap in financial markets refers to a price jump that occurs when the price of a security moves to a higher or lower level without passing through the intermediate price levels. The video script mentions the possibility of a gap in the context of the stock market's movement. The speaker discusses the potential for a gap up in the stock price, which could affect the bear call spread strategy by causing the stop order to be triggered at a higher price than anticipated.

💡Buy Stop Order

A buy stop order is an order to buy a security that becomes a market order when the security's price reaches a specified level. In the video, the speaker describes setting a buy stop order as part of the contingency plan for the bear call spread strategy. If the stock price rises towards the strike price, the buy stop order is triggered to purchase the stock, allowing the investor to cover the sold call option and potentially convert the bear call spread into a covered call.

Highlights

Discussion on making money from the stock market during downturns, specifically in September.

Introduction to the strategy of selling bear call spreads to collect premiums during market uncertainty.

Emphasis on not treating this strategy as a get-rich-quick scheme and the importance of portfolio readiness.

Explanation of the need for capital to cover the purchase of 100 shares of the underlying stock.

Recommendation to watch cover call videos for better understanding before implementing bear call spreads.

Analysis of the stock market's reaction to the Federal Reserve's decision to keep interest rates high.

Technical chart analysis indicating a potential market retrace and support levels.

Historical data review showing typical market performance in September and October.

Step-by-step guide on setting up a bear call spread using Google as an example.

Explanation of the order of operations for setting up a bear call spread versus a covered call.

How to sell a call option contract without initially owning the shares through the use of an out-of-the-money option.

Demonstration of selling a bear call spread on the thinkorswim platform for Google stock.

Discussion of the two possible scenarios on the day of expiration and how they affect the trade.

Pros of the bear call spread strategy, including its statistical favorability and potential for capital gains.

Cons of the strategy, such as the risk of an unrealized loss if the stock price moves unfavorably.

Advice on setting up a bear call spread on a stock that one is bullish on long term.

Encouragement for viewers to ask questions and suggest topics for future videos.

Transcripts

so you hear a lot of people say they

know how to make money from the stock

market especially when the stock market

drops and that's exactly what's

happening right now in the month of

September so in this video I'm going to

talk about how people do this and some

strategies that you can use in your

portfolio too specifically with selling

bear call spreads or setting up bear

call spreads this is a strategy that I

personally use for myself and with my

students and we like to sell these

contracts to other people to collect

some premiums while we wait for this

uncertainty in the stock market to pass

now I am going to preface by saying that

no this is not a get rich quick scheme

yes you are going to make some money

maybe a couple hundred dollars from

these contracts that you sell but you

need to make sure that your portfolio is

able to do so you also want to make sure

that you have the capital to cover

yourself to buy 100 shares of the

underlying stock so that this way you

can convert your bear call spread into a

covered call and if you haven't seen my

cover call videos yet I would watch

those first before you watch this video

because then it's going to to make much

more sense and make sure that you watch

this video all the way until the very

end because I'm going to talk about the

pros and cons about setting up a bear

call spread and this is something that

you need to be aware of all right

without further Ado let's get started so

first of all what's been happening in

the stock market well this week the

Federal Reserve said that they were

going to keep interest rates high right

now is because they still want to tame

inflation so the stock market kind of

reacted negatively and a lot of the

stocks in the S P 500 sold off if you

take a look at spy which is an ETF that

tracks the S P 500 we've been on this

upward Trend where we've been bouncing

off of this support line in blue right

here and we finally broke it right here

and we've been kind of trending

downwards now here's the thing folks

just by looking at the technical charts

I do think that we are going to retrace

back upwards and there are some

indicators here because yeah we might be

on some sort of support line horizontal

support line at the 430 dollar level you

can see that we bounce off of this back

in June 2023 and we might be bouncing

off of it again right here and we can

also take a look at the RSI you can see

that the RSI right now is around 33

meaning that this is usually the level

that the S P 500 likes to kind of bounce

off of and we bounce off of this RSI

level back in August 18 2023 and again

back in March 2023 and so on and so

forth in the past so it is possible that

we might retrace back upwards and even

try to fill in this Gap that we had the

last day or so however with that said

this doesn't mean that we are absolutely

going to bounce up it is still possible

that we continue the sell-off because

this red Candlestick is pretty strong it

is possible that we break through and

maybe even drop down to maybe like the

420 dollar level here but that's okay

because you're watching this video and

we actually want the stock market to

drop or even trend sideways so that this

way we can collect some premium from

selling our bear call spread and if you

want to take a look at some of the

historical data you can go to

moneychemp.com to see how well we

performed on a monthly basis and just

kind of play around toggle some of these

buttons here if I click on September you

can see that all the way from 1950 to

2022 we typically have some sort of down

month on average we usually drop around

point eight percent you can see that

back in 2022 we dropped eight percent

2021 we've dropped four percent twenty

twenty four percent and then so on so

forth now this doesn't mean that we

always drop because there are some up

years too but if you take a look at the

overall historical data we've had around

32 up years but 41 down here and in

October you can see that we usually have

a positive return however you can also

see that in the last couple of reasons

years back in 2020 we've had a negative

three percent drop 2018 a negative seven

percent drop so I don't know we might

have a negative year in October too but

if we were to take a look at that

long-term history we might have some

sort of positive return and typically as

we enter November and December where we

have some sort of Santa Claus rally we

typically have a rise in the stock

market a lot of portfolio managers will

start to reallocate their portfolios and

start to buy more shares so this way

they can show their clients what it is

that they purchased and then they want

to make their clients happy because of

course if they make money then they also

make a percentage of that too okay so

let's talk about selling bear call

spreads and how to do this step by step

which I'm going to show you on my think

or Swim web platform for my example that

I'm going to use today I'm going to use

Google the ticker symbol is g-o-o-g-l

and you can see that Google has been on

an upward rise we've been kind of in

this upward channel right here ever

since the end of 2022 last year and

beginning of 2023 and we've been kind of

undulating to upwards here now you can

see that of course just like with the

rest of the stock market Google also

dropped very violently and it's possible

that we might drop a little bit even

more all the way down to this green line

right here but of course we can always

bounce back up anything can happen in

the stock market but I like Google and

here's the thing I know it's kind of

contradicting I want to own Google for

the long term but I think that Google is

going to drop in the short term and

because I have this bias I am going to

then set up a bear call spread or sell a

bear call spread and by looking at the

charts I'm going to say or predict that

Google is not going to reach the 143

level around the 140 level in the next

couple of days and if it does that's

awesome we're going to have a plan for

it but we're just gonna say that Google

is not going to hit 143 dollars within

the next 30 to 45 days and that might

continue to drop or maybe even Trend

Sideways from now until the expiration

date which again I'll talk about in a

bit so this is how you set up a bear

call spread very similar to a covered

call where you have to do two steps step

one you're going to buy 100 shares and

then step two you sell the call option

contract against the 100 shares and you

collect the premium with a bear call

spread it's very similar but the problem

with a cover call is if you buy the 100

shares and the underlying stock drops

then you're going to have an unrealized

loss in your portfolio because you're

holding the 100 shares so to kind of

counteract that what you can do is you

can set up a bear call spread and do the

order of operations opposites from

setting up a covered call Tray so with a

cover call you're going to buy 100

shares and then you're going to sell the

call option contract but with a bear

call spread what we're going to do is

we're going to reverse that and we're

going to sell the call option first and

then if we need to cover ourselves then

we'll buy the 100 shares so hopefully

you can see it's the opposite order of

steps for a covered call okay so I know

where you're going to ask me Steve how

can you sell that call option contract

if you don't have the 100 shares

initially that's actually a good

question and that's what a bear call

spread is so instead of just sell

selling the call option contract first

which you actually can do unless you're

approved for options for level trading

which I don't recommend what you need to

First do is buy a call option contract

first something that is way out of the

money which I'll talk about in a little

bit and then you can sell the call

option contract when you buy that first

out of the money call option contracts

it's going to be a proxy or a

substitution of 100 shares once you have

that option contract you can then sell

another call option contract just like

what you would do for a covered call and

then collect that premium hopefully this

all makes sense but if it doesn't don't

worry because I'm going to do it step by

step in the next couple of minutes so

hang on tight okay so I'm on the

thinkorswim web platform right here and

I'm going to type in my ticker symbol

Googl which is the ticker symbol for

Google I'm going to go to the option

chain which is basically again like what

I've said in my past videos it's a

Marketplace of where people like to buy

and sell their option contracts I'm

going to go out for further in

expiration today usually I like to

choose an expiration that's around 30 to

45 days away but I'm going to make an

exception and choose a further out

expiration dates so this way I can get

more extrinsic value I'm going to choose

the November 17th expiration which is

around 57 days away I'm going to open

that up and remember how I said that

with Google I don't think it's going to

really reach 143 dollars within the next

couple of days so because of that I'm

going to take a look at the option chain

and look under the strike price of

around 143 dollars or somewhere around

there well 143 dollars doesn't show up

here so I'm going to go up in price and

choose the 145 dollar strike price right

here and this is the price that I don't

think Google is going to really reach

within the next couple of days this is

the call option contract that I'm going

to sell at so remember with the option

chain call options are usually denoted

on the left hand side all the put

options on the right hand side and

because we're selling a bear call spread

we're going to focus our attention on

the left hand side I'm going to take a

look at the strike price of 145 and

because I'm selling a call option

contract I'm going to look under the bid

column not the ask column I'm going to

line it up and I can see that I can sell

a call option contract for 158 dollars

per contract and then I'm going to click

on this okay so going back to that

initial question of Steve how can you

sell a call option contract if you don't

own 100 shares first and that's exactly

what we're going to talk about right now

I need to First buy another out of the

money call option contract which is

going to acts as a proxy a substitution

of 100 shares so then this way I can

then sell the call option contract

against it so going back to the option

chain I'm going to scroll all the way

down here and I'm going to choose a

further out of the money call option

contract maybe around the 175 dollar

strike price right here so you can see

that because now that I'm buying a call

option contract I'm going to look under

the ask column and I can buy this call

option contract for nine dollars so

here's what's happening step number one

I'm going to buy a call option contract

the 175 dollar strike price for nine

dollars this is going to act as a 100

share proxy just like with a cover call

so this way I can then sell my call

option contract against it step number

two I'm then going to sell this 145

dollar strike call option contract and

collect 158 dollars from it so if you do

the math 158 dollars collected minus

nine dollars that's going to be around

149 that we make that we are going to

collect as our premium I'm going to make

sure that all my toggles are correct I

am selling one call option contract for

the November 17th expiration for 145

dollar strike price and this is a call

option and then I'm also buying a call

option with the same expiration dates at

the 175 dollar strike price and this is

also a call option here I'm going to

click on review and submit and boom I

should be able to collect around 149 150

155 dollars right here it's based on

what the bid ask spread is but that's

how much credit I'm going to collect and

then I can hit send and I'm done okay so

this is where it gets really important

this is where I talk about the

contingencies of what is going to happen

on the day of expiration because really

two things are going to happen so

scenario number one if Google stays

below 145 dollars by the time of

expiration that's actually very good for

us because what's going to happen is

both of the contracts that we have the

one that we bought and the one that we

sold are all going to Decay by Theta

they're all going to expire worthless

meaning that we can keep the entire

premium of 140 150 and hopefully

everyone can see that this is a

statistically favorable trade because

Google can go up down or sideways and

still make money so why is this it's

because if Google continues to Trend

downwards that's good for our bear call

spread because that's what we want the

underlying stock to do or if the stock

just Trends sideways then our call

option contracts are going to Decay by

Theta even if Google starts to Trend

upwards if it doesn't Trend upwards fast

enough by the time of expiration to our

strike price then yeah both of our

contracts are going to Decay by Theta

and expire worthless so this is the

optimal strategy where we want the

underlying stock to Trend sideways go

down or maybe even if it goes up it

doesn't really hit the 145 dollar strike

price by the time of expiration okay so

here's scenario number two if the stock

starts to Trend up to 143 144 dollars

before it hits the 145 dollar strike

price what we need to do is I'm going to

buy 100 shares of Google so this way I

can deliver them to the other party for

145 dollars again if you don't know what

I'm talking about it's okay you can

watch my cover call videos that I made

in the past and I have a whole bunch of

them on my channel so when I set up this

bear call spread what I usually like to

do as my third step is I like to set a

buy stop order so how do I do this well

I'm going to go to the top right hand

corner I'm going to click on buy and I'm

going to buy 100 shares of Google only

if Google starts to rise up this means

that I'm going to change my market order

into a stop order or a buy stop order

and remember my strike price was 145

dollars I'm then going to want to

purchase 100 shares of Google at 144

dollars so I'm going to type that price

in right here 144 dollars a hundred

shares of them I'm then going to change

this day order into a GTC or a good till

cancel I'm going to click on review and

then submit so what does this mean this

means that if Google starts to rise up

and it starts to hit

143 144 dollars then my brokerage is

automatically going to buy 100 shares of

Google for a hundred and forty four

dollars and again this is why I said in

order to place his trade you want to

make sure that you have the capital to

buy a hundred shares of Google to cover

yourself when it hits 144 dollars that's

awesome and if it continues to move on

upwards that's very good for us because

then we're going to make some capital

gains because we bought the shares for

144 dollars and we sold the strike price

a call option strike price for 145

dollars we're going to sell all of our

shares for a hundred and forty five

dollars each this means that we're going

to make a 100 profit because we bought

the shares for 144 and we're selling

them for 145. this is a one dollar

difference and one times 100 shares is a

100 capital gain not only do we get the

100 capital gain we also made the

premium from the credit spread or the

bear call spread the 100 plus the 150

dollars worth of premiums or 140

whatever it is that we get then all

together that's a 240 250 dollar profit

right there and if the stock continues

to rise then that's actually good for us

because remember that call option

contract that we purchased maybe just

maybe that call option contract that we

purchased at the 175 dollar strike might

go up in value too because remember

whenever we buy a call option and the

underlying stock goes up then that call

option is most likely going to increase

in price because it's a derivative of

what the underlying stock does if the

underlying stock goes up call options

typically like to rise up if the

underlying stock drops then the call

option will typically like to drop as

well so let's talk about the pros and

cons of this trade Pro number one this

is a statistically favorable trade

because remember we can kind of win in

all three directions of the underlying

stock if it drops that's good for us if

Google starts to Trend sideways Theta

eats away from the contracts and the

same thing with if the stock Rises up

but not as aggressively all the way to

the strike price that we choose if it

doesn't hit that strike price by

expiration we also quote unquote win two

and pro number two is if the stock does

go up and goes above our strike price

we're able to cover ourselves convert

our bear call spread into a covered call

and then we can make another 100 capital

gain or whatever it is that we choose as

our buy stop order and then make some

more money on top of the premium that we

collected from the bear call spread this

is a strategy that a lot of

institutional Traders like to place on

where they set up a whole bunch of bear

call spreads they sell the call option

contracts where the stock market just

typically just Trends sideways and let

Theta Decay away from their co-option

contracts and they can just collect all

these premiums okay so let's talk about

the cons to this trade it is very

possible that the stock goes up and then

maybe it'll trigger our buy stop order

where we'll purchase 100 shares for 144

dollars and then all of a sudden the

stock just drops this is going to give

us an unrealized loss because then we're

going to have a hundred shares of Google

and then the underlying stock drops and

this is why again I like to say I want

to set up a bear call spread on a stock

that I am bullish long term so this way

I don't mind holding on to 100 shares

the second con is sometimes with the

stock market it is possible that we

might have a gap up this means that if

we set up a buy stop order at 144

dollars and all of a sudden Google

releases very good news and then the

price shoots up above 144 dollars it

just skips over 144 dollars maybe it'll

be at 143 dollars one day and then jump

up to 145 dollars the next day then our

buy stop order might be triggered too

late and we might instead buy our shares

for 145 146 dollars instead or wherever

it ends up the next day compared to what

we wanted to buy the shares for which is

144 dollars and I guess the third con

for this is it's a more Capital

intensive trade just like with a covered

call because remember you need to have

the capital to buy 100 shares to cover

yourself just in case the stock goes up

and hits the strike price by the time of

expiration and going back to what I said

earlier you want to be bullish on it in

the long term and you want to be willing

to purchase 100 shares and if this is

something that you don't want to do I

would not set up this bear call spread

in this fashion and yes this is how I

set up my bear call spreads and what

works for me and I know there are a lot

of Traders out there where maybe the

width of their spread might be a little

bit smaller some people like to make

theirs wider but this is typically what

I like to do all right that's pretty

much it for this video thank you so much

for watching if you have any questions

about this trade let me know in the

comments below if you have any ideas on

any future video topics you can also let

me know in the comments and I'm going to

try my best to make them in the future

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next video bye everyone