Shorting Call Option is basically selling call option on an index / underlying stock which is a bearish strategy or in sideways.
Sell Call option if your view on the Market is Very Bearish or in consolidation , you receive premium from the buyer which is limited . But if the price goes up beyond the strike price, you lose will be unlimited till you book loss.
So it's better to put stop loss when you short.
Strategy - Very Bearish or in consolidation till expiry
Risk - unlimited
Reward - limited to the premium recieved
Breakeven is Strike price + premium paid
If the Market is Bearish or sideways / consolidation , you are in profit because you receive premium from the call buyer.
If the Market is Bullish, you will be in loss.
Eg.
Nifty Currently trading at 16200.
You are shorting Nifty 16300 CE July 2022 @ 100 premium of 1 lot size (50 contracts) in view of your Bearish view.
So, 100*50= 5000 is the premium recieved from the buyer for shorting
Nifty 16100 CE July 2022.
If the Market is Bullish and ends up @16500 on expiry, you will be in huge loss because you are against the Trend of your strategy.
If the Market is Bearish, and ends up at 16300 on expiry date, your profit is limited to 5000 only which is the premium recieved
If Market is @ 16400 on Expiry, that is the breakeven. So there will be no loss and no profit.
So Shorting a Call Option is beneficial only when you are expecting the market to be in consolidation or bearish
For 1 point increase in Nifty, delta will decrease. As the contract is near to expire, theta decay helps in your favour (option seller).
