Long Call Options - Introduction
Buying call options. or also known as Long Call Options or simply Long Call, is the simplest bullish option strategy ever and is a great starting point for beginner option traders.
Buying call options / Long Call Options offers the protection of limited downside loss with the benefit of leveraged gains. When applied correctly, it allows even beginner option traders to consistently make more profits than losses.
Buying call options / Long Call Options also allows you to transform the position into more exotic option strategies like the Bull Call Spread in order to hedge against risk at any point before expiration. That makes Buying Call Options / Long Call Options an extremely versatile option strategy in the correct hands.
Find Options Strategies With Similar Risk Profiles
Buying Call Options / Long Call Options is in reality, a leveraged way of trading the underlying stock for much more profits on the same move in the stock. One should be familar with call options before executing this strategy. Please read all about call options here.
When To Buy Call Options / Long Call Options?
Buying Call Options / Long Call Options is an extremely versatile option strategy where one can use when:
1. Confident of a dramatic short term rise in the underlying stock
Because call options depreciate daily due to time decay. one would want the underlying stock to rise quickly
so that one can sell the call option for a profit before it expires.
2. Wants to control more of the underlying stock using lesser money to hold for long term gain
When one is bullish on an underlying stock and wants to control it for a lesser price for the long term, buying call options LEAPS is an ideal strategy and a leveraged alternative to holding stocks.
Long Call Example
GOOG is trading at $473.23 per share at the time of this writing. Each lot of 100 shares would cost traders $47,323.00, which is not usually an amount beginner traders has. One could instead control the same 100 shares of GOOG and benefit from the same move for 7 months if it goes up through buying call options / long call options on it's call options with another 7 months to expiration for only $4,860.00 per contract, which is only 10.26% of the price of GOOG. That is the discounting effect of Buying Call Options / Long Call Options. This allows you to take a maximum risk of only $4,860 no matter how low GOOG goes in the future rather than risking the whole $47,323 in an outright stock trade.
How To Buy Call Options / Long Call Options?
There are actually 2 ways to execute a buy call options / Long Call Options strategy. I shall simply refer to them as the Beginner way and the Veteran Way.