Long Call

1. Definition

A Long Call is the most fundamental bullish options strategy. It involves buying a call option, which gives the investor the right, but not the obligation, to purchase the underlying asset at a specific strike price on or before the expiration date.

2. Market View

• Strong Bullish: Used when the investor expects the stock price to rise significantly and quickly. Since time decay works against the buyer, a slow or moderate rise might not be enough to generate a profit.

3. Setup

• Action: Buy to Open a Call Option.
• Cost: Debit transaction (The investor pays a premium to the seller).

4. Profit & Loss Profile

4.1. Max Profit

Unlimited Since there is theoretically no limit to how high a stock price can rise, the potential profit for a long call is infinite. * $$Profit = (Current Price - Strike Price) - Premium Paid$$

4.2. Max Loss

Limited Even if the stock price drops to zero, the investor is not obligated to exercise the option. The maximum loss is capped at the premium paid upfront.

4.3. Break-even Point

The stock price must rise above the [Strike Price + Premium Paid] for the trade to become profitable.

5. Pros & Cons

• Pros: Offers high leverage (controlling 100 shares with a small premium) and strictly defined risk (cannot lose more than the initial investment).
• Cons: Suffer from Time Decay (Theta). Every day that passes without the stock moving up erodes the value of the option. If the stock remains flat or rises too slowly, the option may expire worthless.