Long Call
The Long Call
The nature of a long call is as a long instrument. The long call takes advantage of underlying securities such as stocks, equities, and ETF’s going up. When the individual investor is bullish on something and he/she decides to play the move with options, the individual investor is looking at a long call position.
A long call allows a buyer to buy specific security at a specified price by a specified time. A call gives the buyer the right but not the obligation to buy specific underlying security at a specified price by specified time. The long call strategy is one of the easiest strategies that a stock trader can implement in order to get better acquainted with the world of options. The long call is considered to be a basic option strategy.
Long Call Risk Profile
There are many different ways to break down the different types of options, but he most basic way is to break down options as groups of calls and puts. Lets start with the long call
Composition
Long Call is simply the purchase of one call option.
Risk/Reward
Max Reward: Unlimited upside potential
Max Risk: Limited to the premium paid up front for the option.
The break even point is where our chart crosses the horizontal axis on the long call chart. The area of importance is where the “hockey stick” looking part of the chart bends and starts going horizontally. That (horizontal) area is going to be the strike price of our option.
When you are a call buyer, no matter how far down the stock may go, you are limited in your loss to only the amount paid for purchasing the long call.
Characteristics
The nature of a call is a long instrument. It takes advantage of underlying securities such as stocks and EFTs going up. Best used when you are bullish on market direction and is the most common choice among first time option traders/investors.
A long call allows the buyer to buy a specific security at a specified price by a specified time. A long call gives the right, but not the obligation to buy a specific underlying security.
As market moves in your direction and call becomes 100 delta it will it will match the stock price dollar for dollar as far as the stock goes up until infinity(theoretically), thus giving you an unlimited return potential.
Important
It’s important to realize that a person buying the long call is buying the right but not the obligation. You can exercise your call, sell out your call, or do whatever you want. You are never obligated as a long call buyer.
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