Sell a call and buy a higher-strike call in the same expiration; a bearish credit trade capped by the long call.
The defined-risk way to be short upside. Because equity calls usually trade at lower implied-volatility than equidistant puts, the credit for a given distance is smaller than the put side offers — the volatility-skew is charging you for taking the less-crowded risk.
Short call verticals carry a wrinkle that put spreads do not: if the short call goes deep in the money before an ex-dividend date, early-assignment can leave you short 100 shares and owing the dividend. The long call protects the price but does not stop the assignment.
Example: XYZ at $50. Sell the 45-day $55 call at $0.80, buy the $57.50 call at $0.35, for a $0.45 credit on a $2.50 width. Max profit $45, max loss $205, breakeven $55.45. If XYZ runs to $58 before the ex-date, expect the short call to be assigned.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
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