Most Traders Pick the Wrong Bearish Trade
A practical guide to choosing the best call credit spread based on risk-reward.
Let’s break this down like a derivatives desk would evaluate the trade: risk, return on risk, and payoff efficiency. This is the key when deciding which width vertical is actually the best trade, not just the one with the biggest credit.
For a short call vertical, the important metrics are:
Credit received
Maximum risk = Width − Credit
Return on risk (ROR) = Credit / Max Risk
Breakeven = Short strike + Credit
Our structure: Short 6800 call
SPX Bear Call Vertical Comparison ( March 20, Monthly Expiration)
Breakeven Levels
Key Insight (Professional Trading Perspective)
Narrow spreads
Pros
Best return on capital
Less dollar risk
Cons
Gamma risk is brutal
Losses accelerate quickly near short strike
Harder to defend
Wide spreads
Pros
More forgiving
Easier to manage
Less pin risk
Cons
Lower ROC
What Institutional Traders Usually Prefer
Most professional traders prefer:
75–125 point wide spreads
Why:
smoother risk curve
easier rolling
less pin risk
behaves more like short naked options with defined risk
My Opinion (Given Our GYP Style)
The sweet spot is likely:
75 wide or 100 wide
Example:
6800 / 6900
Credit: 51.45
Risk: 48.55
Breakeven: 6851
This gives:
good ROC
room to manage
reasonable tail risk
Something VERY Important (Most Traders Miss)
You are actually choosing between:
Higher ROC vs Higher Probability
The 125 wide:
lower ROC
best probability of profit
Many hedge funds prefer this because:
smooth P&L > maximizing ROC
What I Would Personally Test
Your strategy might benefit from:
Short 6800 / Long 6900 or 6925
Then size properly.
Example:
Instead of
4 × 25 wide
do
1 × 100 wide
Same directional exposure, far cleaner risk profile.
One More Advanced Insight
The reason the credit doesn’t scale linearly is because:
Vega increases
tail risk increases
market prices convexity
This is why ultra wide spreads start becoming inefficient.
My Ranking (Risk-Adjusted)
1️⃣ 100 wide → Best balance
2️⃣ 75 wide → Strong ROC + manageable risk
3️⃣ 125 wide → Best probability
4️⃣ 50 wide → Acceptable
5️⃣ 25 wide → Too tight for SPX
Final Thoughts
The examples above are meant to illustrate how different spread widths can change the risk-reward profile of a bearish SPX trade. A 25-point spread, a 75-point spread, or a 100-point spread may all express the same directional opinion, but they behave very differently in terms of capital at risk, breakeven levels, and probability of profit.
There is no single “perfect” spread width.
The right structure depends on several factors, including:
Your account size
Your personal risk tolerance
Your ability to manage the trade if the market moves against you
The current volatility environment
The size of the position relative to your overall portfolio
For some traders, tighter spreads may offer attractive return on capital. For others, wider spreads may provide a smoother risk profile and more room to manage the position.
The key takeaway is not the specific strikes used in these examples, but the process of evaluating the trade. By looking at credit received, maximum risk, breakeven levels, and return on risk, traders can make more informed decisions when structuring bearish positions.
Every trader should adapt these concepts to their own portfolio, capital allocation rules, and risk management framework.
Risk Disclosure
Options trading involves substantial risk and is not suitable for all investors. Strategies involving options, including credit spreads and other derivatives strategies, can result in significant financial losses and may expose traders to risks that exceed the initial premium received.
The examples presented in this article are for educational and informational purposes only and should not be considered investment advice, a recommendation to buy or sell any security, or a solicitation to engage in any specific trading strategy.
Market conditions change rapidly, and the performance of any strategy can vary significantly depending on timing, volatility, liquidity, and execution. Past performance or hypothetical examples are not indicative of future results.
Before trading options or implementing any strategy discussed here, you should carefully consider your financial situation, experience level, and risk tolerance. You should also consult with a qualified financial advisor, tax professional, or other licensed professional if necessary.
The author and Grow Your Pile make no representations or warranties regarding the accuracy or completeness of the information provided and assume no liability for any trading losses or other damages that may result from the use of this information.
Trading is inherently risky. Only trade with capital you can afford to lose.