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+Chapter 8: Bear Spreads Using Call Options 
+SELECTING A BEAR SPREAD 
+189 
+Depending on where the underlying stock is trading with respect to the two striking 
+prices, the bear spread may be very aggressive, with a high profit potential, or it may 
+be less aggressive, with a low profit potential. If a large credit is initially taken in, 
+there is obviously the potential for a good deal of profit. However, for the spread to 
+take in a large credit, the underlying stock must be well above the lower striking 
+price. This means that a relatively substantial downward move would be necessary in 
+order for the maximum profit potential to be realized. Thus, a large credit bear 
+spread is usually an aggressive position; the spreader needs a substantial move by the 
+underlying stock in order to make his maximum profit. The probabilities of this 
+occurring cannot be considered large. 
+A less aggressive type of bear spread is one in which the underlying stock is 
+actually below the lower striking price when the spread is established. The credit 
+received from establishing a bear spread in such a situation would be small, but the 
+spreader would realize his maximum profit even if the underlying stock remained 
+unchanged or actually rose slightly in price by expiration. 
+Example: XYZ is trading at a price of 25. The October 30 call might be sold for 1 ½ 
+points and the October 35 call bought for½ point with the stock at 29. While the net 
+credit, and hence the maximum profit potential, is a small dollar amount, 1 point, it 
+will be realized even if XYZ rises slightly by expiration, as long as it does not rise 
+above 30. 
+It is not always clear which type of spread is better, the large credit bear spread 
+or the small credit bear spread. One has a small probability of making a large profit 
+and the other has a much larger probability of making a much smaller profit. In gen­
+eral, bear spreads established when the underlying stock is closer to the lower strik­
+ing price will be the best ones. To see this, note that if a bear spread is initiated when 
+the stock is at the higher striking price, the spreader is selling a call that has mostly 
+intrinsic value and little time value premium (since it is in-the-money), and is buying 
+a call that is nearly all time value. This is just the opposite of what the option strate­
+gist should be attempting to do. The basic philosophy of option strategy is to sell time 
+value and buy intrinsic value. For this reason, the large credit bear spread is not an 
+optimum strategy. It will be interesting to observe later that bear spreads with puts 
+are more attractive when the underlying stock is at the higher striking price! 
+A bear spread will not collapse right away, even if the underlying stock drops in 
+price. This is somewhat similar to the effect that was observed with the call bull 
+spreads in Chapter 7. They, too, do not accelerate to their maximum profit potential 
+right away. Of course, as time winds down and expiration approaches, then the spread