Being Partially Bearish

It is possible to make money on a down trending stock without having to short it. Maybe you want to make money as a stock falls, but would also like to make money if the stock stays still. In this case you may want to use a bear call spread. This spread allows you to take a partially bearish stance in the market. Stocks could fall, go nowhere, or even go up a little and you could still profit. All the stock needs to do with a strategy like that is stay below a certain level and you would receive max gain. The other great benefit it provides is unlike selling naked call, which gives you unlimited loss potential; there is a max loss you can have with spreads. If you sell a naked put on a stock and the stock skyrockets you could stand to lose an unlimited amount of money from that position. This makes selling naked calls the most risk strategy in the stock market. However when you sell a bear call spread you buy a call with a certain strike price and sell a call with a lower strike price. The difference between these two strike prices is the most you can lose. So if you buy the $40 call and sell the $35 call the most you can lose is $5. Anytime you place a trade you want to limit your risk by placing stop losses. With bear call spreads the stop loss is already factored into it, so you do not need to worry about where to place your stop. It also makes it very easy when it comes to position sizing. There is a downside however, anytime you place a bear call spread you are risking more then you are making. You may be risking $3.4 to make $1.60. If the stock moves in your favor it could be potentially dangerous and because of that you should only use bear call spreads when you believe a stock will fall further. For more information about bear call spreads visit http://www.stocks-simplified.com/Bear_Call_Spread_Stocks.html For more information about option selling visit http://www.stocks-simplified.com/option_selling.html