A long call is one of the most simple options strategies. The trader buys a call contract, and then waits for the price to move up. The call can be purchased in the money, at the money, or out of the money, and the trade goes into profit when the price moves above the strike price plus the premium (the amount paid for the call). An in the money call will have a higher premium than an at the money call, which will have a higher premium than an out of the money call, but the out of the money call needs the price to move further than the in the money or at the money calls before it will be profitable.
Making a Long Call
- Purchase a single call contract
- Wait for the price to move above the strike price plus the premium
- Sell or exercise the call to retrieve the profit
Risk and Reward
As shown on the risk / reward chart (view the full size chart), the risk of a long call is low, and is limited to the premium regardless of how far the price moves down (against the trade). The risk of a long call is calculated as :
Maximum Risk = Premium
Loss = Premium (if price <= strike price upon expiration)
The reward of a long call is potentially unlimited, as the price could move up (with the trade) by any amount. The profit of a long call is calculated as :
Maximum Profit = Unlimited
Profit = Underlying Price - Strike Price - Premium
