Do you know what a long call is in options trading? Long calls are the same as buying a naked call option, just a different name. You go long or purchase a call when you believe the stock price is increasing. One options contract is the equivalent of 100 shares of the stock. Calls are typically found on the left side of an options chain.
A long call is the same thing as buying a call. It means that you are bullish and going long the stock. A long put is the same thing as buying a put. It means that you are bearish or going short the stock. Here at the Bullish Bears, we go through each strategy and the different names you’ll hear them by. As a result, you won’t be in the dark when you hear someone say a long call. Instead, you’ll know what they’re talking about.
We start with a long call. What is it? A long call is the most basic options trading strategy. It is buying a call.
When you set out to learn stock trading, you may wonder why options have a few names for the same strategy. Maybe they like confusing new traders. More likely, they like having a more technical name than buying a call.
When it comes to trading options, don’t necessarily get hung up on the exact terminology. Instead, what makes the most sense to you?
Once you’ve figured that out, stick with it. If buying a call is more understandable than an LC, stick to calling it that.
Options in and of themselves are confusing when you’re starting. More moving parts make up options than a stock has. However, that also means that there’s more profit potential as well as loss.
What Is an Option?
An options contract gives you the right but not the obligation to buy (call) or sell (put) a stock at a predetermined price within a certain time. As a result, options are wasting assets.
They have expiration dates, whereas stocks don’t. As a result, if the wrong direction is chosen, you can’t hold forever in hopes of a recovery. One contract controls 100 shares. As a result, you can trade large-cap stocks for a lot cheaper than buying 100 shares outright.
Calls and puts are the foundation of all options strategies. Calls take the bullish side, whereas puts take the bearish side.
Hence, an LC also means buying a call. When you go long, you’re bullish. The same is also true for stocks. Many times, you’ll hear going long vs short.
If you’re day trading a stock, going long doesn’t mean you’re holding forever. It means you’re bullish on the stock. Shorting takes the bearish side of the stock.
The great thing about options is their ability to make money in any market: up, down, and even neutral, sideways trading markets.
Why Take a Long Call Option Position?
When you hear the term long call, you know that a call was bought. You can both buy and sell calls. However, each strategy is, in fact, different.
When you buy a call, you’re bullish on the trade. You believe the stock is going to head up in price. An LLC is like buying a stock when you think the price will increase.
You can day trade, swing trade, and long-term trade options. However, with the different moving parts, you’d want to make sure buying a longer-term position is in your best interests.
Remember that options expire. As a result, time decay occurs, and if you’re long, you lose Theta.
Buying a call means you must be pretty accurate in your chosen direction. Otherwise, you have the potential to lose your entire trade.
That’s why buying naked calls and puts is considered extremely risky, so other options and strategies were formed.
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Knowing When to Buy a Long Call
Since a long call is a directional play, you need to know what to look for if you’re going to buy a call. That means you need to know candlestick patterns along with support and resistance.
Candlesticks are the foundation of all trading. They provide support and resistance; a single candle can tell a story. Group them, and you’ve got patterns.
As a result, if you take an LC trade, you must be sure the stock will move up, especially if you’re swing trading options.
You don’t want to buy a call right near resistance. If the stock can’t break that resistance level, it will fall. You’re in trouble if you go long on a head-and-shoulders pattern.
Not every trade is going to be successful. Even if you bought it with all signs pointing to bullish, as a result, you must ensure you get out of the trade quickly.
Trade Risk Management
When trading a long call, ensure proper risk management is in place. That’ll save your bacon.
Since options are wasting assets, you can’t hold forever in the hope of recovering. If you only bought a weekly call and the direction goes against you, you must sell quickly.
Many times, a weekly option is cheaper because the risk is higher. If the trade goes against you, don’t wait for it to recover. Instead, cut your loss quickly.
That’ll save you money in the long run. You’ve probably heard the saying,” Plan your trade and trade your plan.” That’s especially important when trading options.
If you have a max loss and you hit it quickly, get out. Don’t wait for it to recover. Again, not every trade will favor you, and that’s okay. It’s part of the process.
The same can be said for a profit target also. If your trade has reached its profit target, take the profit. Staying in the trade to get more money usually turns against you.
When greed takes over, you often end up losing. You never go broke taking your profits. Stick to your plan. That’s how you become a successful trader.
Final Thoughts on Long Call Options
Since a long call relies so much on picking the right direction, it’s important to practice. Options, in general, have more going on. As a result, open a simulated trading account.
TD Ameritrade has a great platform in ThinkorSwim. There, you can practice picking the right direction and buying calls. Work out the kinks and get your trading plan established.
If you need more help, take our options trading course.
Frequently Asked Questions
A trader long on a call option is bullish on the security. They purchase a call option because they believe the underlying security will rise in price.
The risk of a long call option for an investor is losing the premium that they paid for the options contract if it has no intrinsic value at the expiration date.
A long call option is a bullish trading strategy. Traders purchase a long call when they believe that the price of the underlying security is going to increase.
A long call vertical spread is a bullish options strategy consisting of a long and short call with different strike prices with the same expiration date.