Strategies · Library · Options
§2.8Carry
Bear call spread
Sell a call at a lower strike and buy a higher-strike call, same expiry, for a net credit. You keep the credit if the stock stays below the lower strike.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Mildly bearish or neutral: expects the stock to stay below a resistance level.
- Entry and exit
- Sell an out-of-the-money call, buy a further out-of-the-money call to cap the risk, same expiry. Close at expiry or buy back early once most of the credit is earned or the short strike is tested.
- Sizing
- 1:1 (one short lower-strike call, one long higher-strike call)
How it fails
- Maximum loss is the strike gap minus the credit, if the stock ends above the upper strike
- Gain limited to the credit
- Breakeven is the short strike plus the credit
- Early assignment on the short call; time decay helps
Data it needs
- options chain with strikes and premiums
- implied volatility by strike and expiry
- underlying daily price
ARCANE has the underlying daily close but no options chains, strikes or implied volatilities
How ARCANE uses it
Matches a Call that a price stays below a ceiling by a date, such as "gold does not trade above a level by quarter end". Paper only.
Short call spread cannot be built; the builder has no short side.
Filed under the carry card
Own what pays more than it costs to finance (the return if prices stand still) and sell what pays less, across currencies, bonds, commodities and stock indexes.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 75% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.8, p. 21 of the SSRN version. Described in our words. Carry is ARCANE’s filing, not the book’s.