Long Call

For aggressive investors who are very bullish about the prospects for a stock / index, buying calls can be an excellent way to capture the upside potential with limited downside risk.

Buying a call is the most basic of all options strategies. It constitutes the first options trade for someone already familiar with buying / selling stocks and would now want to trade options. Buying a call is an easy strategy to understand. When you buy it means you are bullish. Buying a Call means you are very bullish and expect the underlying stock / index to rise in future.

When to Use: Investor is very bullish on the stock / index.

Risk: Limited to the Premium. (Maximum loss if market expires at or below the option strike price).

Reward: Unlimited Breakeven: Strike Price + Premium

Example

Mr. XYZ is bullish on Nifty on 24th June, when the Nifty is at 4191.10. He buys a call option with a strike price of Rs. 4600 at a premium of Rs. 36.35, expiring on 31st July. If the Nifty goes above 4636.35, Mr. XYZ will make a net profit (after deducting the premium) on exercising the option. In case the Nifty stays at or falls below 4600, he can forego the option (it will expire worthless) with a maximum loss of the premium.

Long Call
Strategy : Buy Call Option
Nifty index Current Value 4191.1
Call Option Strike Price (Rs.) 4600
Mr. XYZ Pays Premium (Rs.) 36.35
Break Even Point 4636.35
(Rs.) (Strike Price
+ Premium)

[stextbox id=”custom”]To view Practical Examples of Long Call Option Trading Strategy[/stextbox]

Courtesy – NSE India