A 'Call' option is a financial contract that gives you as a buyer the right, but not the obligation, to buy a stock at a specified price at a particular time. Investors usually buy a 'Call' option when they hope that the underlying Stock / Index will rise.
When they expect the underlying stock/index to fall, they do the opposite and sell or short a 'Call' option. This position offers a limited profit potential and the possibility of large losses on big advances in underlying prices. Although it is easy to execute, it is a risky strategy since you as the seller of the Call are exposed to unlimited risk.
When to use: The investor is very aggressive and he is very bearish about the Stock /Index.
Reward: Limited to the amount of premium.
Break-even Point: Strike price + premium.
To understand this better, here's an example:
Mr. XYZ is bearish about Nifty and expects it to fall. He sells or shorts a Call option with a strike price of ₹2,600 at a premium of ₹154 when the current Nifty is at 2,694. If Nifty stays at 2,600 or below, the Call option will not be exercised by the buyer of the Call, and Mr. XYZ can retain the entire premium of ₹154.
Analysis: This strategy is usually used when an investor is very aggressive and has a strong expectation of a price fall (and certainly not a price rise). This is a risky strategy since as the Stock price / Index rises, the short call loses money more and more quickly and losses can be significant if the Stock price / Index falls below the strike price. Since the investor does not own the underlying stock that he is shorting, this strategy is also called Short Naked Call.