Published on January 23, 2023

Long Call Option Strategy

optionxls

@marketxls

What are the characteristics of this Long Call Option Strategy?

The Long Call Option Strategy is a moderately simple strategy that enables investors to make profits as the price of the underlying security moves. In this strategy, the investor buys a call option and holds it until expiration. If the stock price appreciates, the investor’s call option will appreciate too and the investor will make a profit.

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 generally has a high risk-reward ratio as the investor is exposed to unlimited upside risk and limited downside risk. The probability of profit is also high as the investor does not need the underlying security to reach a certain level for the option to be profitable.

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 the market is trading at high levels of volatility as the options will be more expensive.

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 buy a bearish option strategy such as a Bull Call Spread or a Short Guts – Long Guts. 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?

This strategy can be used to generate income, however, it is best used as a long-term strategy to take advantage of possible price appreciation in the underlying security.

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 typically respond favorably to this strategy as there is a predictable stream of income for buying the option. As the option expires, the market makers can collect the premium if the option does not move in the investor’s favor.

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 $430 for the option contract.

If the stock price is $320 at the expiration of the option contract, the investor will make a net profit of $1640.

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 $430 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