Option strategies

Long Call
Long Call definition
Buying a call in anticipation of a price rally is a bullish strategy.
When an in the money, at the money, or slightly out of the money call is purchased, the trader usually expects the price to rally.
There are some exceptions in which long calls and long puts are used to hedge a loss.
If the price of the underlying rallies and the strike price of the calls become deeper in the money, the trader can sell the option contracts and collect more premium than originally paid.
The amount of the price increase, the volatility, and the amount of time that remains in the option contract governs the amount of premium the buyer receives.
And you've seen how long calls that become in the money can be exercised and then sold for profit.


Long Call P&L chart
Fedex long call P&L chart

Out of or at the Money at Expiration If the strike price of a call remains out of the money, i.e., above the price of the underlying equity, the trader may be able to sell the option contracts to recover part of the premium originally paid for the call options.
However, there must be enough time and open interest (liquidity) remaining for the order to fill.
If the trader holds the position through contract expiration, the trade will expire worthless.
When this happens, the trader suffers a 100% loss of the premium originally paid for the call options. In the Money by One Cent Prior to Expiration Recall how in the money calls are auto-exercised.
When a short option's strike price becomes in the money prior to contract expiration, the option trader may be able to roll the contract to a different strike and later expiration date.
Rolling out and up to a higher strike can offset a portion, if not all of the loss in premium.
Many option traders are not interested in holding stock or ETFs within their brokerage accounts. When given a choice, they prefer to restrict their activity to buying and selling option contracts rather than buying and selling stocks or ETFs, which are always susceptible to price drops during market "corrections."


See also:

Short Call

Long Put

Short Put

Options profit calculator

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