Call Option Strategies
1. Overview
A Call Option gives the holder the right to buy an underlying asset at a specified strike price on or before the expiration date.
- Buyer: Profits if the asset price rises significantly. (Unlimited upside potential)
- Seller (Writer): Profits if the asset price falls or remains flat, collecting the premium as income.
2. Key Strategies
2.1. Long Call
The most basic and aggressive strategy involving simply buying a call option. * Market View: Very Bullish (Expects a sharp price increase). * Structure: Pay a premium to buy the right to purchase the asset. * Pros: High leverage with limited capital; theoretically unlimited profit potential. * Cons: If the price does not rise above the break-even point before expiration, the entire premium is lost due to time decay.
2.2. Covered Call
A conservative strategy where an investor holds a long position in an asset and writes (sells) call options on that same asset.
- Market View: Neutral to Slightly Bullish.
- Structure: Long Stock + Short Call.
- Mechanism: The investor collects the option premium as income. This provides a small downside buffer but caps the upside potential if the stock price skyrockets (the stock is called away at the strike price).
- Usage: Popular for income generation in flat markets (e.g., JEPI ETF).
2.3. Bull Call Spread
A vertical spread strategy designed to profit from a moderate rise in the underlying asset's price while reducing the upfront cost.
- Market View: Moderately Bullish.
- Structure: Buy a Call at a lower strike price + Sell a Call at a higher strike price.
- Mechanism: The premium received from selling the higher strike call offsets the cost of buying the lower strike call.
- Characteristics: It is cheaper than a plain Long Call, but the maximum profit is capped at the difference between the strike prices minus the net premium paid.