What are the characteristics of this Long Call Option Strategy?
Long call positions are the simplest way to express a bullish view with options: the investor buys a call and holds it, risking only the premium paid. If the stock price appreciates, the call appreciates too, and the trade makes money once the stock clears the strike by more than the premium. If the stock stays flat or falls, the call can expire worthless and the entire premium is lost.
Is this a bullish, bearish or neutral strategy?
This strategy is a bullish strategy as buying a call option generally shows the investor has a bullish outlook on the security.
Is this a beginner or an advanced option strategy?
The Long Call Option Strategy is considered to be an intermediate option strategy as it requires a thorough understanding of the dynamics involved in trading options.
In what situation will I use this strategy?
The Long Call Option Strategy is typically used when the investor believes that the price of the underlying security will appreciate.
Where does this strategy typically fall in the range of risk-reward and probability of profit?
The Long Call Option Strategy has a high reward to risk ratio: profit potential is unlimited to the upside while the maximum loss is capped at the premium paid. The probability of profit is low, because the stock must rise above the strike plus the premium paid, $314.25 in the example below, by expiration for the trade to make money.
How is this strategy affected by the greeks?
This strategy is affected by the greeks, such as Delta and Vega, as they determine the sensitivity of the option to changes in the price of the underlying and changes in the volatility of the underlying.
In what volatility regime (i.e VIX level) would this strategy be optimal?
This strategy is typically optimal when implied volatility is low, because the buyer pays the premium and a cheaper option means a lower breakeven. A long call is long vega, so it also benefits if volatility rises after entry.
How do I adjust this strategy when the trade goes against me? And how easy or difficult is this strategy to adjust?
The investor can adjust the strategy by selling the call option if the stock price moves in the wrong direction. If the investor believes that the stock price will continue to decline, he/she can close the call and put on a bearish position instead, such as a Bear Put Spread, which is a debit spread with both the profit and the loss defined at entry. Note that a Bull Call Spread is a bullish position, not a bearish one, so it does not hedge a view that has turned lower. The difficulty of adjusting this strategy depends on the experience level of the investor.
Where does this strategy typically fall in the range of commissions and fees?
The commissions and fees associated with this strategy typically depend on the broker used and the size of the option contract.
Is this a good option income strategy?
No. A long call is not an income strategy. The buyer pays the premium rather than collecting it, and the position loses value to time decay every day the stock does not rise. It is a directional bet on price appreciation. Income strategies collect premium instead, for example covered calls or cash-secured puts.
How do I know when to exit this strategy?
The investor must assess his/her risk tolerance and decide when to exit the position accordingly. As mentioned earlier, if the investor believes that the price of the underlying will not appreciate in the near future, he/she can sell the option and cut the losses.
How will market makers respond to this trade being opened?
Market makers will normally fill a single long call order without difficulty, because the short call they end up with is straightforward to delta hedge with stock. They are not taking a directional view against the buyer, they are pricing volatility and hedging. If the call expires out of the money they keep the premium; if the stock runs, the hedge is what pays for the assignment.
What is an example (with calculations) of this strategy?
Let’s say the current price MSFT is $287 and a call option with a strike price of $310 is trading at $4.25. The investor buys 1 option contract which gives him/her the right to purchase 100 shares of stock MSFT at $310, regardless of the stock price at the date of the expiry. The investor pays $425 for the option contract, and that $425 is the most that can be lost on the trade.
The breakeven is the strike plus the premium, $310 + $4.25 = $314.25.
If the stock price is $320 at the expiration of the option contract, the investor will make a net profit of $575 (the $1,000 intrinsic value less the $425 paid for the contract).
If the stock price is $290 at the expiration of the option contract, the option will expire out of the money and the investor will lose the entire $425 paid for the option.
How MarketXLS can help
MarketXLS is an excellent tool for investors wanting to take advantage of the Long Call Option strategy. With MarketXLS, investors can easily track real-time option prices, apply technical and fundamental analysis on stocks, and analyze risk-return value of options contracts. MarketXLS also provides options calculators, which makes it easy to analyze and calculate returns on option strategies. With its comprehensive set of tools, MarketXLS makes it easy for investors to execute the Long Call Option strategy.
Here are some templates that you can use to create your own models
Protective Put / Synthetic Long Call Option Strategy
Long Call Option Strategy
Diagonal Spread with Calls Option Strategy
Long Butterfly with Calls Option Strategy
Iron Butterfly Option Strategy
Call Backspread Option Strategy
Bull Call Spread Option Strategy
Bear Call Spread Option Strategy
Long Albatross Spread
Bear Put Spread Option Strategy
Long Calendar Spread With Calls Option Strategy
Long Calendar Spread With Calls Option Strategy
Laddered Call
Risk Reversal Option Strategy
Collar Option Strategy
Long Gut
Long Strangle Option Strategy
Iron Condor Option Strategy
Short Albatross Spread
Synthetic Short Straddle with Calls
Search for all Templates here: https://marketxls.com/templates/
Relevant blogs that you can read to learn more about the topic
Long Call Option Strategy (Explained With Excel Template)
Benefits of Being Delta Positive
Long Put Option Strategy-Tracking And Managing(With Excel Template)
Long Call Options Trade/Strategy-How To Manage And Track
Long Call Diagonal Spread – An Advance Option Strategy