Bear Call Spread
A bear call spread grants one call and buys a call at a higher strike with the same expiry. Here that means writing BP's October 560 call and buying the 580, collecting 5.00p net, which is £50.00 per 1,000-share ICE contract. Its worst case is 20p of width minus that credit, £150.00, or £152.80 after the opening commission, before any stamp duty on a delivery. The price of that ceiling is the wing, £70.00 of the 560 call's £120.00 premium. The structure fits the view that a share stays below a level. BP is a model underlying at an illustrative 530p; this is not a view on BP, and the takeover case below is hypothetical.
Read with the covered call and the long call in mind. The bull put spread is this page's mirror below the market; where the mechanics are shared, this page quotes its HSBC figures and links rather than repeating them. Figures are modelled on the library's model sheet.
BP's October 560 and 580 calls
BP options trade on ICE Futures Europe only in the standard size, rights over 1,000 shares; BP is not among the 22 UK names with a 100-share mini, so the smallest BP position is 1,000 shares (contract sizes). The options are American style and settle by delivering shares. BP's actual close on 17 August was 519.6p; the library uses 530p as its illustrative level, and the strikes are plausible rather than quoted from a live chain.
The wing is what makes this a covered position. With the same expiry, the same size and a higher strike, the long 580 call can always meet the obligation the 560 call creates, so the broker holds the width, £200, rather than an uncovered call's requirement (spread margin). IBKR files a short call spread under its Options Level 3 and, like any spread, it needs a margin account (permissions and account types). Placing both legs as one order matters: legging in leaves a moment with the 560 call uncovered.
Open this worked example in the strategy builder (both fills, no dividend in the October life).
Payoff: flat below 560p, 20p of slope, then a ceiling
Up to 560p nothing is owed and the £50.00 stays. Between the strikes the written call costs £10 for every penny BP rises; from 580p the wing pays back penny for penny and the loss stops at £150.00. The last column is the reason the wing exists: written alone, the same call stands at −£680.00 at 640p and has no floor at all.
What the 580 wing costs, and what it buys
Three ways to hold the same opinion (BP not above 560p by 16 October) on the same written call. The requirement for the uncovered call uses the Cboe and FINRA strategy-based formula (premium plus 20% of the share price less the out-of-the-money amount), shown for illustration only: a UK broker margins ICE options by its own method, and the requirement its order preview shows is the one that applies (uncovered margin).
The example's 26% sits at IV rank 25 on the library's assumed 12-month BP range of 20% to 44%, a teaching assumption rather than market data (IV rank explained). At 20% the same spread would be worth 3.90p (£39.04); at 38%, rank 75, 6.08p (£60.78).
The wing gives up £70.00 of premium and 7.00p of cushion. What comes back is a requirement that falls from £880.00 to £200.00 and never rises, and a ceiling on the loss. Because the capital tied up falls faster than the credit, the best case on that capital rises from 15.6% to 31.5%. A wider wing is a halfway house: the 600 call (model 3.92p, filled at 4.00p) costs £40.00, 33.3% of the premium, keeps more of the credit and caps the worst case at £320.00. None of it is free: between the 565.00p breakeven and 587.00p the spread loses more than the call written alone, because it collected £70.00 less; only above 587.00p does the wing start paying for itself.
A bid for the company: the takeover-morning table
Most risks on this page can be read off a chain. A takeover bid cannot, because it arrives overnight as a jump. The UK Takeover Code sets the timetable once it starts. When a company announces that it is in talks or has been approached, an offer period begins, and the announcement must name any potential offeror in talks or that has approached the company, unless the approach has been unequivocally rejected (Rule 2.4). That offeror then has until 5.00 pm on the 28th day to announce a firm offer or that it will not bid, unless the Panel extends the deadline (Rule 2.6(a), known as "put up or shut up"). The Takeover Panel's Disclosure Table lists every company in an offer period with its Rule 2.6 deadline (checked 27 September 2026); the announcements themselves appear on the regulatory news services.
The table follows the three positions through a hypothetical bid. No offer for BP exists or is implied; the case exists to price the mechanism. On Tuesday 1 September a possible-offer announcement lifts BP 20% to 636p and implied volatility to 40%. On Tuesday 29 September, the 28th day, the story ends one of two ways: a firm cash offer at 742p (40% above 530p) with implied volatility collapsing to 10% because the price is now pinned, or a statement that the bidder will not proceed, with BP back at 520p and volatility at 26%. Every volatility here is an assumption.
On the announcement morning the 560 call is worth 86.39p against a 12.00p sale (the 580 and 600 calls 71.04p and 57.30p), the uncovered writer is marked at −£743.86 with a requirement of £2,135.86, and the next 28 days are a coin with lopsided faces. A firm offer at 742p leaves the 560 call worth 182.98p, almost all of it intrinsic value, and takes the uncovered result to −£1,712.57, with £3,313.77 of requirement until it is closed; the 580 wing holds the spread to −£155.25. If the bidder walks away, all three recover most of their credit. The spread cannot avoid the jump; it sizes it. A writer can see in the Disclosure Table whether a company is already in an offer period before writing, but a first approach arrives unannounced, and a FTSE 100 index spread (below) cannot be bid for at all.
Credit against debit on the same BP strikes
Buying the 580 put and writing the 560 put gives the same bearish payoff for a debit: 15.29p on the American puts. With European values, 4.93p for the call spread plus 14.95p for the put spread makes 19.88p, the 20p width discounted over 60 days (a 0.12p gap). The bull put spread page works the same parity on HSBC and draws the general point; for BP the practical differences are cash flow and which leg can be exercised early. The written 560 put in the debit version can be assigned once it is deep enough in the money for the interest on the strike to outweigh its time value, which is why the American put spread, at 15.29p, is worth more than its European value of 14.95p. The written call here is worth exercising early only just before an ex-date, and none falls before 16 October. The debit version has its own page.
Worked example: BP from 17 August to the October expiry
Branch A: half the credit on Thursday 10 September, and what the spread eats
BP has drifted to 520p with 36 days left, implied volatility 25%. Engine values 4.27p and 1.78p; at tick prices of 4.25p and 1.75p the buy-back costs 2.50p, exactly half of the 5.00p credit, so the library's half-credit convention closes it.
The last line is this branch's lesson. On a 5.00p credit, half of a 1.00p quote paid on each of four legs costs 40% of everything the trade can earn, so a half-credit target reached through the bid-ask leaves nothing. Holding to expiry instead would have added up to £27.80 if BP stayed at or below 560p (a model probability of 82.5% from that day, IV 25%), with an 8.3% probability of the maximum loss.
Branch B: BP at 555p with 21 days left, and a roll across the ex-date
On Friday 25 September BP is 5p below the written strike and volatility has risen to 28%. Valued at 13.10p and 6.17p, the two calls would cost 6.75p to buy back at tick prices (13.00p and 6.25p) and the position is short about 195 share-equivalents. The 21-day convention closes or rolls.
The November series is priced at the same 28% and carries BP's 30 October results (with the event premium a results date can add, which the flat 28% leaves out) and its 12 November ex-date, so the rolled position would face the early-exercise test worked below. The dividend also works against a call-spread roll: it takes 0.15p off the November spread, where on the bull put page HSBC's dividend added to the put spread's roll. The up-and-out roll moves the strikes away from BP but costs −£12.50 and raises the maximum loss; the rolling page sets out the credit-only habit and when it traps. Holding the October spread instead: £47.20 if BP finished at or below 560p (model 55.4%), −£52.80 at 570p, and the maximum loss with probability 25.5%.
Branch C: the bid
The takeover-morning table above is Branch C: on a firm offer at 742p the spread closes at −£155.25 while the written call alone would have closed at −£1,712.57.
Branch D: BP at 585p on 16 October, close or deliver
Both calls expire in the money. Closing before 16:30 at the full 20p costs −£155.60 with commissions (−£175.60 with the half-spread). Letting both legs run to delivery means being assigned on the 560 call, which obliges the writer to deliver 1,000 BP shares at 560p, and exercising the 580 call to obtain them at 580p. The delivery itself carries no stamp duty for the writer, because the buyer of shares pays SDRT, but exercising the 580 call makes the writer a buyer: £29.00 of SDRT, 0.5% of £5,800. Result: −£184.60, worse than closing by that £29.00, 19.3% of the £150.00 maximum loss (who pays SDRT; defined only at expiry).
Greeks as the trade ages
A one-standard-deviation jump on day one puts BP at 589p, just past the wing, and flips the signs: gamma +6.7, vega +£1.08, theta −£0.19 a day. Past its long strike the spread gains from volatility, because only a fall back through 580p can help. With BP on the written strike in the final week, the spread collects +£2.23 a day while a further 3% rise to 576.8p would cost £61.20, against £22.06 for the same rise with 60 days left. The bull put page shows the same expiry-week trade on HSBC; the units are defined on the Greeks page.
BP's 12 November ex-date and the December 560 call
The October series expires before BP's two autumn dates: third-quarter results on Friday 30 October and the ex-dividend date on Thursday 12 November, both from BP's 2026 financial calendar. The dividend is modelled at 6.39p, the second-quarter rate of 8.66 US cents at the model exchange rate; BP sets the actual figure with its results. Moving the same spread to December (123 days) brings the dividend inside its life, and that changes both the price and the assignment risk.
Priced on 17 August with the dividend, the December 560 call is worth 20.19p, of which 0.38p is the value of being able to exercise before the ex-date, and the 580 call 14.29p. Filled on the tick at 20.25p and 14.25p, that is a 6.00p credit, £60.00 (model spread 5.90p). Without the dividend the calls would be 22.37p and 16.08p: the model spread would be 6.29p, so the expected fall in the share price on the ex-date takes 0.39p off it.
The risk arrives the day before the ex-date. On Wednesday 11 November, with 37 days left, a holder of the 560 call compares two things: the call's value if held through the ex-date, and what exercising now gives (the shares, which then collect the 6.39p). An options intermediary with stamp duty relief exercises if the second is larger; a private holder also pays 0.5% SDRT on the 560p strike, 2.80p a share, so needs a larger gap (early exercise before an ex-date).
For an intermediary, exercising pays from about 611p; for a private holder only from about 638p. The holder on the other side may well be an intermediary with the relief, so the lower price is where assignment becomes likely: a writer who wanted to avoid it would have to close before the evening of 11 November with BP above roughly 611p. The spread's wing does not change this test, which is about the written call alone.
Suppose BP closed at 620p on 11 November and the 560 call was exercised that evening. The next morning the writer is short 1,000 BP sold at 560p for settlement on Friday 13 November, and BP opens ex-dividend at 613.61p. Buying the shares then costs 613.61p a share plus £30.68 of SDRT on the purchase, and the writer owes the exercising holder the £63.90 dividend, because shares bought after the ex-date do not carry it. The 580 call, worth 42.29p with 8.68p of time value, is sold at 42.25p rather than exercised (exercise would add £29.00 of SDRT and discard the time value). The whole December trade ends at −£153.78 before any commission on the share purchase; closing both legs on 11 November at 60.00p and 42.50p (model 60.10p and 42.57p) would have ended at −£120.60. The assignment page covers a short call assigned without the shares.
Why cash cannot stand behind a short call
A written put has a largest possible loss, the strike, so cash can secure it. A written call does not, because a share price has no ceiling; the only full cover for a call on its own is the shares themselves, which is a covered call. That is why a call written alone needs margin that grows with the share price (£880.00 at entry, £3,313.77 on the hypothetical bid morning) and why the bought 580 call is not an optional extra here but the thing that fixes the requirement at £200.00. IBKR's cash accounts allow covered calls and cash-backed puts but not spreads, so the structure needs a margin account whatever its size.
When 560p is tested: the conventions in pounds
None of these is a rule; each trades one number for another. The general mechanics of closing and rolling are on the rolling page, and the conventions' origins on the methods page. At £152.80 per contract the library's 2% sizing line (£1,000 on a £50,000 account) fits six contracts, £916.80 of maximum loss (sizing).
UK tax: the grant, the wing and a delivery after 5 April
The written 560 call is a disposal on 17 August 2026, its grant; a buy-back is folded into that grant under TCGA 1992 s148. The 580 call is a separate asset until sold, lapsed or exercised. All tax figures take the £3,000 annual exempt amount as already used elsewhere; which of 18% or 24% applies depends on the basic rate band left.
The trap particular to a written call is an assignment in a later tax year. Written in March 2027 and lapsing, this call's grant would give a £118.60 gain in 2026/27 (£21.35 at 18%, £28.46 at 24%). Assigned in April instead, the grant stops being a disposal of its own: the premium joins the 2027/28 share sale, and any tax already paid on the grant is set off or repaid (CG12317). The tax page covers the cross-year cases and the assignment table; SA108 boxes are listed there too. No option can be held in an ISA (wrappers).
What commission, spread and stamp duty take
A small credit magnifies every fixed cost. Writing and closing the spread costs 51% of the credit on these assumptions, which is why Branch A barely broke even, and why the width, the credit and the cost of trading have to be read together. Commission rates are IBKR UK's published tiered rates (checked 26 September 2026); other brokers are mapped on the broker page.