Long Call Options
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 that the price of the stock is going up. One options contract is the equivalent of 100 shares of the stock. Calls are typically found on the left side of an options chain.
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What Are Long Call Options?
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 long call. Instead, you’ll know what they’re talking about.
We start out with a long call. What is it? A long call is the most basic options trading strategy. It is in fact, buying a call.
When you set out to learn stock trading, you may be wondering why options have a few names for the same strategy. Maybe they just 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 to you than long call, then stick to calling it that.
Options in and of themselves are confusing when you’re starting out. There are more moving parts that 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 priced 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 for 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, why long call also means buying a call. When you go long, you’re bullish. The same is also true for stocks. Many times you’ll hearing 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 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. In essence, a long call is just like buying a stock when you think price is going up.
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 call longer term is in your best interests.
Remember that options expire. As a result, time decay occurs and if you’re long, then you lose Theta.
Buying a call means you have to be pretty accurate in the direction you’ve chosen. Otherwise, you have the potential to lose your entire trade.
That’s why buying naked calls and puts are considered to be extremely risky. Hence why other options strategies were formed.
Know When to Buy a Call
Since a long call is a directional play, you need to what to look for if you’re going to buy a call. That means you need to know candlesticks, patterns along with support and resistance.
Candlesticks are the foundation of all trading. Not only do they provide support and resistance but a single candle can tell a story. Group them together and you’ve got patterns.
As a result, if you’re going to take a long call trade, you need to be absolutely sure the stock is going to move up. Especially if you’re swing trading options.
You don’t want to buy a call right near resistance. If stock can’t break that resistance level, than it’s going to fall. If you went long on a head and shoulders pattern, you’re in trouble.
Not every trade is going to be successful. Even if you bought with all signs pointing bullish. As a result, you need to make sure you get out of the trade quickly.
What Is a Long Call Vertical Spread?
- A long call vertical spread is a bullish options strategy that consists of a long call and short call with different strike prices that have the same expiration date.
Trade Risk Management
When you’re trading a long call, make sure you have proper risk management in place. That’ll save your bacon.
Since options are wasting assets, you can’t hold forever in hope to recover. If you only bought a weekly call and direction goes against you, you need to sell quick.
Many times a weekly option is cheaper because the risk is higher. If the trade goes against you, don’t wait for it to maybe 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 is going to go in your favor and that’s ok. 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 ends up turning against you.
When greed takes over, many times you end up losing You never go broke taking your profits. Stick to your plan. That’s how you become a successful trader.
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 are 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.