The bear Call spread strategy can be adopted when the investor feels that the stock/index is either range bound or falling.
The concept is to protect the downside of a Call sold by buying a Call of a higher strike price to insure the Call sold.
In this strategy, the investor receives a net credit because the Call he buys is of a higher strike price than the Call sold. The strategy requires the investor to buy out-of-the-money (OTM) Call Options while simultaneously selling in-the-money (ITM) Call Options on the same underlying stock index. This strategy can also be done with both OTM Calls i.e. the Call purchased has a higher OTM strike price than the Call sold.
If the stock/index falls both Calls will expire and the investor can retain the net credit. If the stock/index rises then the breakeven is the lower strike plus the net credit. Provided the stock remains below that level, the investor makes a profit. Otherwise, he could make a loss. The maximum loss is the difference in strikes less the net credit received. Let us understand this with an example.