Strategy

Long call

Type of Strategy

trading / investing

sentiment

bullish

implied volatility

preferential to low iv environments for lower purchase cost, though flexible

example

stock xyz at $42.  Buy the 45-day 50 delta call option (at-the-money) with a strike price of $42 and a cost of $2.

boundaries

max loss = $2     max profit = undefined    breakeven = $44     (call Stke + debit paid)

description

A long call provides the holder with the right to purchase a security at the specified strike price prior to option expiry.

Set-Up

Purchase a call option at strike price X for a cost of P.

Soi perspective

Purchasing out-of-the-money (OTM) call options is a losing strategy over time, especially with short expiration cycles.

Deep in-the-money (DITM) call options with long expiry (LEAPS) may function as a stock substitute for option investors, especially if reduced cash outlay may be safely invested for a return above the LEAP option premium. 

Adding a short-term covered call to a DITM LEAP purchase that eliminates net extrinsic value provides another scenario for the option investor.  Details of this strategy are provided under Dragon Leaps.

Pure option premium purchases (including long call purchases) should generally be avoided.

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