The long call option strategy is a bullish options trading strategy with a theoretical unlimited profit and a limited loss. Buying call options creates a long position on an underlying asset and limits net downside exposure.
-Buy 1 call option
Note: like most options strategies, calls can be purchased in-the-money (ITM), at-the-money (ATM), or out-of-the-money (OTM).
Tip : If you want to buy calls, do not buy deep ITM or deep OTM call options. The bid/ask spread is too wide. Better is to buy ATM, slightly ITM or slightly OTM call
-Stock XYZ is trading at $28 a share.
-Buy 29 call for $0.80
Profit and Loss Diagram
Long Call Summary
|Break Even Price||Strike Price + Premium Paid|
|Unlimited because stock can go to infinity, at least in theory|
|Maximum Profit Scenario||Stock rises meteorically beyond the break even price|
|Limited to initial premium paid|
|Maximum Loss Scenario||Stock stays lower than break even price|
|Why Trade||If you want to get leveraged bullish exposure to a stock at lower investment as compared to owning the stock outright|
|When to Trade||Stock Assumption : Very Bullish|
Volatility : When volatility is low, so you pay less premium to enter the trade
|When to Close||There is no set profit target.|
|Passage of time||Negative.|
With passage of time, the value of this option decreases
|Increase in volatility||Positive.|
With increase in volatility, the value of option increases