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Bear Spreads 103: Call Spreads vs. Put Spreads

You can be bearish with Calls (Credit) or Puts (Debit). Which is better? The book hints that Puts might be the superior tool for aggressive bears.

Feb 18, 202610 min read

Two Ways to Bear

1. Bear Call Spread (Credit): Sell Call / Buy Higher Call. (Income strategy).

2. Bear Put Spread (Debit): Buy Put / Sell Lower Put. (Speculative strategy).

The "ITM" Advantage of Puts

The book notes an interesting dynamic: If you are aggressive and want to trade a stock that is currently at the higher strike (e.g., Stock $35, Target $30).

Bear Call Spread: You sell the $30 Call (ITM). You are selling mostly Intrinsic Value. This is inefficient because intrinsic value doesn't decay; you have to pay it back unless the stock moves.

Bear Put Spread: You buy the $35 Put (ATM) and sell the $30 Put (OTM). You are selling Time Value on the short leg. This aligns with the "Seller's Edge" of harvesting Theta.

Result: If you expect a big drop, the Bear Put Spread (Debit) often offers a better risk/reward profile than the deep ITM Bear Call Spread.

Rule of Thumb: Use Credit Spreads (Calls) when you expect the stock to stay flat or drop slowly. Use Debit Spreads (Puts) when you expect a sharp drop.

Key takeaways

  • Bear Call Spreads are best for "Passive" bears (Income).
  • Bear Put Spreads are best for "Active" bears (Speculation).
  • Selling ITM calls (Credit) is often inferior to buying Put spreads (Debit) because you give up the Time Value edge.

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