Long Call

Long calls offer the buyer the opportunity to profit if the price of the Underlying asset or commodity rises because the option contract permits them to be exercised at a cheaper price. Long calls are generally used either as a form of insurance or hedging to protect against the price of the Underlying rising, alternatively they can be purchased for speculative reasons. The Delta of a Long call provides a form of leverage because the price of the option may be less than the Underlying asset (considerably so in the case of Out Of The Money calls) but the price will fluctuate partly based on its value. Long calls are not necessarily an ideal instrument for speculation because of the Theta decay features of all Options. Theta has the effect of reducing the value of an Out Of The Money option.

Single Long calls and Long puts are the simplest option strategy. They have defined risk because no more than the price of the option when the trade was entered can be lost, however, because the entirety of a trader's capital fall in value to nothing if they expire Out Of The Money they cannot be considered low risk.



Example

XYZ is currently trading at $100

Long 1 x At The Money $100 Call Option for 5.0 = $500

Net debit to enter trade = 5

At expiration XYZ is trading at $110

Long 1 x At The Money $100 Call Option is now worth 10.0 = $1000
Net profit = $500 ($1000 - $500)

At expiration XYZ is trading at $90

Long 1 x At The Money $100 Call Option expires worthless = $0
Net loss = (-$500)

At expiration XYZ is still trading at $100

Long 1 x At The Money $100 Call Option expires worthless = $0
Net loss = (-$500)

At expiration XYZ is trading at $105

Long 1 x At The Money $100 Call Option is worth 5 = $500
Break even: $500 to enter, option is worth $500 at Expiration.