Long Call

Long Call

Post By - Laxmi Mahera
Review By : Rohan Sharma
Updated on : October 26, 2021

Basic Concepts

Context

Outlook

With a Long Call, your outlook is bullish. You expect a rise in the underlying asset price.

Net Position

This is a net debit transaction because you pay for the call option

Effect of Time Decay

Time decay works against your bought option

Appropriate Time Period to Trade

First 2 weeks for Monthly Options

Breakeven = (Call strike + call premium)

Steps to Trading a Long Call

Steps In

Try to ensure that the trend is upward and identify a clear area of support.

Steps Out

Manage your position according to the rules defined in your Trading Plan.
Sell your long options before the final month before expiration if you want to avoid the effects of time decay.
If the stock falls below your stop loss, then exit by selling the calls.

Exiting the trade

Exiting the Position

Sell the calls you bought

Mitigating a Loss

Use the underlying asset or stock to determine where your stop loss should be placed.

Advantages and Disadvantages

Advantages

Cheaper than buying the stock outright.
Far greater leverage than simply owning the stock.
Uncapped profit potential with capped risk.

Disadvantages

Potential 100% loss if the strike price, expiration dates, and stock are badly chosen.
High leverage can be dangerous if the stock price moves against you.

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