Options Strategies: Long Call

What does this mean?

If you were to buy this call, you have the right – and not the obligation – to buy the Apple shares for $160. This right runs until the third Friday in March 2022

When are you happy with this right?

If the share is going to rise above €160, because then this purchase right is worth money! What would it be worth if, for example, the stock were trading at $180?

The call gives the right to buy the share for $160 while it trades on the stock exchange for $180. This means that the purchase right on $160 must be worth at least $20! Then the call you bought for $5.35 would have become worth $20!

When are you not happy?

If the stock goes down. Because if, for example, the share is listed at $130 on the expiry date, the right to buy it $160 is not interesting. After all, you can buy it on the exchange.

When do you buy a call?

You buy a call if you think the underlying asset will rise in the coming period.

When will you sell the purchased call?

Once you've bought a call, you don't have to stay in it until the end of the term. You can also sell this call at any time during the trading day. So you could buy a call on Monday and sell it again on Wednesday.

When you take profits depends on your view of the underlying asset. If you think that the underlying value can rise further, you don’t have to say goodbye just yet. You can also choose a target, for example, a doubling of the option price. Once this is achieved, you sell. It is also wise to determine in advance when you will sell in the event of a loss. For example, you could follow a rule that if you lose 50% of the value, then you sell the option. You can also choose to lose the entire option premium because you know that the loss can never be greater than the premium paid.

What is your maximum risk?

The risk you run when buying the call is the premium you have paid. That is your maximum loss. This will occur if the stock remains below the strike price you bought. You can therefore never lose more than the option premium that you have paid.

In short

You buy a call if you think the underlying asset is going to rise. Your maximum risk is also known in advance and that is the price you paid for the call option. That’s the maximum amount you can lose.