The Long Call strategy is a basic yet effective options trading method utilized when expecting an increase in an asset's price. It is a well-liked option for bullish traders since it provides limitless upside potential with no risk.
Buying a call option or long call, allows you to buy an asset at a certain price, which is the strike price before the option's expiration.
For this, you have to pay a fee, which is also called a premium.
The right time to make use of the long call strategy is when you believe that the asset’s price will rise noticeably. If you want to benefit from the upward price movement without owning the asset or want to limit your downside risk to the premium paid, it can be the best time to do so.
Maximum Profit: Theoretically unlimited, as the profit increases with any rise in the underlying asset's price above the strike price plus the premium paid.
Maximum Loss: Limited to the premium paid for the option, which occurs if the option expires worthless (i.e., the asset's price remains below the strike price).
Stock Price at Purchase: $100
Strike Price: $100
Premium Paid: $5
Break-even Point at Expiration: $105 (Strike Price + Premium)
| Feature | Details |
|---|---|
| Market View | Bullish |
| Risk | Limited to premium paid |
| Reward | Unlimited (as asset price rises) |
| Breakeven | Strike Price + Premium |
| Leverage | Yes, it controls large position with less capital |
A long call strategy lets you profit from upward price movements with unlimited upside, while keeping your maximum loss limited to the premium paid.
You should use the long call strategy for three specific reasons:
This strategy is perfect for traders seeking extended bullish bets, as it allows them to benefit from upward price movements with limited capital. It also suits investors who want to predict rising prices without taking delivery of the underlying asset, making it a flexible approach.
Additionally, it can be used for portfolio hedging, providing upward exposure while managing the overall risk.
When using a long call strategy, timing your entry is very important.
Premium charges might increase if you buy it too soon, particularly if implied volatility is high. Before taking a position, it is important to understand the state of the market because options with a high IV are more costly.
Moreover, planning your entry and managing the trade with a clear exit strategy can also help you maximize the benefits of a long call strategy. It will help in protecting your earnings, which in therefore help in minimizing the losses.