Options Trading Strategies: Long Call
Buying a call option gives you the right, but not the obligation, to purchase the underlying asset at the strike price on expiration.
When to use this strategy?
If you are extremely bullish, a long call option strategy is the straightforward way to profit, and also the easiest choice for a beginner in the options trading. Your profit increases as the price of BTC/ETH rises. The maximum loss is limited to the premium you have paid.
Below is a Profit and Loss chart example of a long call options strategy:
Pros:
An advantage of using a long call strategy is that less capital is required to buy one contract in comparison to the cost of one BTC/ETH, and that maximum loss is limited to the premium you have paid to buy a call.
Cons:
This strategy is effective only if the underlying price moves up rapidly. If you are not sure that the price will jump substantially, you may consider another bullish strategy.
Example:
In this example, BTC is trading at 42,411.88 USD, and you expect its price to rise. You have bought a call with a strike price of 42,000.00 USD, an expiration date of February 9th 2022., and for a premium of 980.20 USD.
The Profit and Loss chart is given below:
Upon expiration:
If the spot price is below your strike price – you will experience the maximum loss, which is equal to the premium you have paid when you bought the call.
You will also make a loss at any point where the spot price is between the strike price and the break even.
If the spot price exceeds the break even price, that is the point you’re starting to make profit.
| BTC at Expiry (USD) | Payoff (USD) |
|---|---|
| 42,000.00 (strike price) | -980.20 (max loss) |
| 42,162.00 | -818.20 |
| 42,510.00 | -470.20 |
| 42,825.00 | -155.20 |
| 42,980.20 (break even) | 0 |
| 43,155.00 | +134.80 |
| 43,623.00 | +624.80 |
| 44,166.00 | +1,185.80 |
| 45,010.00 | +2,029.80 |