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+Chapter 8: Bear Spreads Using Call Options 187 
+Example: An investor is bearish on XYZ. Using the same prices that were used for 
+the examples in Chapter 7, an example of a bear spread can be constructed for: 
+XYZ common, 32; 
+XYZ October 30 call, 3; and 
+XYZ October 35 call, 1. 
+A bear spread would be established by buying the October 35 call and selling the 
+October 30 call. This would be done for a 2-point credit, before commissions. In a 
+bear spread situation, the strategist is hoping that the stock will drop in price and that 
+both options will expire worthless. If this happens, he will not have to pay anything 
+to close his spread; he will profit by the entire amount of the original credit taken in. 
+In this example, then, the maximum profit potential is 2 points, since that is the 
+amount of the initial credit. This profit would be realized if XYZ were anywhere 
+below 30 at expiration, because both options would expire worthless in that case. 
+If the spread expands in price, rather than contracts, the bear spreader will be 
+losing money. This expansion would occur in a rising market. The maximum amount 
+that this spread could expand to is 5 points - the difference between the striking 
+prices. Hence, the most that the bear spreader would have to pay to buy back this 
+spread would be 5 points, resulting in a maximum potential loss of 3 points. This loss 
+would be realized if XYZ were anywhere above 35 at October expiration. Table 8-1 
+and Figure 8-1 depict the actual profit and loss potential of this example at expiration 
+(commissions are not included). The astute reader will note that the figures in the 
+table are exactly the reverse of those shown for the bull spread example in Chapter 
+7. Also, the profit graph of the bear spread looks like a bull spread profit graph that 
+has been turned upside down. All bear spreads have a profit graph with the same 
+shape at expiration as the graph shown in Figure 8-1. 
+TABLE 8-1. 
+Bear spread. 
+XYZ Price at October 30 October 35 Total 
+Expiration Profit Profit Profit 
+25 +$300 -$100 +$200 
+30 + 300 - 100 + 200 
+32 + 100 - 100 0 
+35 - 200 - 100 - 300 
+40 - 700 + 400 - 300