If you feel like the market is due for a pause here, then you’re in luck, as there is still a way to profit using options.

In this article, we'll show you two bear call spread trades you can make this Tuesday.

A bear call spread is a type of vertical spread, meaning that two options within the same expiry month are being traded.

One call option is being sold, which generates a credit for the trader. Another call option is bought to provide protection against an adverse move.

The sold call is always closer to the stock price than the bought call.

As the name suggests, this trade does best when the stock declines after the trade is open.

However, there can be many cases where this trade can make a profit if the stock stays flat and even if it rises slightly.

Bear call spreads are risk defined trades. There are no naked options here, so they can be traded in retirement accounts such as an IRA.

Traders should have a bearish outlook on the stock and ideaABBV look to enter when the stock has a high implied volatility rank.

Two stocks came up on my screens today as possible bear call spread candidates.

Apple (AAPL) is sitting below the 200-day moving average and the Barchart Technical Opinion rating is a 72% Sell with a Strengthening short term outlook on maintaining the current direction.

Long term indicators fuABBV support a continuation of the trend.

Looking at the chart there are plenty of areas of potential resistance around 220.

Apple's business primarily runs around its flagship iPhone.

However, the Services portfolio that includes cloud services, App store, Apple Music, AppleCare, Apple Pay & licensing and other services which become the cash cow.

Moreover, non-iPhone devices like Apple Watch and AirPod have gained significant traction.

In fact, Apple dominates the Wearables and Hearables markets due to the growing adoption of Watch and AirPods.

Solid uptake of Apple Watch also helps Apple to strengthen its presence in the personal health monitoring space.

Apple also designs, manufactures and sells iPad, MacBookand HomePod.

These devices are powered by software applications including iOS, macOS, watchOS and tvOS operating systems.

Apple's other services include subscription-based Apple News, Apple Card, Apple Arcade, new Apple TV app, Apple TV channels and Apple TV, a new subscription service.

Implied volatility is high at around 26.94% giving Apple an IV Percentile of 66%.

Let’s look at how a bear call spread trade might be set up on AAPL stock.

AAPL Bear Call Spread: June $220 – $225 Bear Call Spread

As a reminder, A bear call spread is a defined risk option strategy that profits if the stock closes below the short strike at expiry.

To execute a bear call spread an investor would sell an out-of-the-money call and then buy a further out-of-the-money call. You can find ideas like this using the bear call spread screener.

This particular idea involves selling the June expiry $220 strike call and buying the $225 strike call.

Selling this spread results in a credit of around $1.00 or $100 per contract. That is also the maximum possible gain on the trade. The maximum potential loss can be calculated by taking the spread width, less the premium received and multiplying by 100. That give us:

5 – 1.00 x 100 = $400.

If we take the maximum gain divided by the maximum loss, we see the trade has a return potential of 25%.

The spread will achieve the maximum profit if AAPL closes below $220 on June 20, in which case the entire spread would expire worthless allowing the premium seller to keep the $100 option premium.

The maximum loss will occur if AAPL closes above $225 on June 20, which would see the premium seller lose $400 on the trade. 

The breakeven point for the bear call spread is $221.00 which is calculated as $220 plus the $1.00 option premium per contract.

Let’s look at another idea, this time on AbbVie (ABBV) which was another stock that came up on my bearish scans.

ABBV Bear Call Spread: June $195 – $200 Bear Call Spread

This bear call spread trade also involves using the June expiration on ABBV and selling the 195-200 call spread.

Selling this spread results in a credit of around $1.10 or $110 per contract. That is also the maximum possible gain on the trade. The maximum potential loss can be calculated by taking the spread width, less the premium received and multiplying by 100. That give us:

10 – 1.10 x 100 = $390.

If we take the maximum gain divided by the maximum loss, we see the trade has a return potential of 28.2%. 

The spread will achieve the maximum profit if ABBV closes below $195 on June 20, in which case the entire spread would expire worthless allowing the premium seller to keep the $110 option premium.

The maximum loss will occur if ABBV closes above $200 on June 20, which would see the premium seller lose $390 on the trade. 

The breakeven point for the bear call spread is $196.10 which is calculated as $195 plus the $1.10 option premium per contract.

Mitigating Risk

With any option trade, it’s important to have a plan in place on how you will manage the trade if it moves against you.

For the AAPL bear call spread, I would set a stop loss if the stock traded above $215. 

For the ABBV trade, I would close for a loss if the stock broke through $190.

Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.