Skip to main content

🗓️ 02112025 2345
📎

LONG CALL

Core Concept: Buying a call option gives the right to profit from stock price increases with limited downside.

Why It Matters​

Calls provide leveraged upside exposure for fraction of stock cost. Common first options trade but time decay can cause losses even if directionally correct.

When to Use​

✅ Use long calls when:

  • Bullish on stock, want leverage
  • Limited capital vs buying stock
  • Defined max loss requirement
  • Time horizon 45-90 days minimum

❌ Avoid when:

  • IV rank >75% (expensive premium)
  • < 30 days to expiration (theta too high)
  • Small expected move (theta erodes faster)
  • Stock pays dividend soon (may drop)

Strategy Mechanics​

Setup: Buy call at strike ≤ 5% OTM
Max profit: Unlimited (stock - strike - premium)
Max loss: Premium paid (100% loss if expires OTM)
Breakeven: Strike + premium paid

Ideal conditions: Rising stock, rising/stable IV, time on your side

Trade-offs​

Pros: Capped risk, unlimited upside, leverage (10-20x stock move)
Cons: Time decay, total loss potential, need to be right on direction AND timing

Long calls demonstrate options_basics mechanics and rely on options_greeks delta/theta dynamics.

Quick Reference​

Position Greeks:

  • Delta: +0.30 to +0.70 (ATM best)
  • Gamma: Positive (accelerates with winning moves)
  • Theta: Negative (lose ~1-3% value/day near expiration)
  • Vega: Positive (benefit from IV rise)

Risk management:

  • Max position size: 1-2% of account per trade
  • Stop loss: Exit at 50% premium loss
  • Profit target: 50-100% gain (2x premium)
  • Time stop: Close if < 21 DTE and not ITM

Strike selection:

  • ATM (highest probability): 50% delta
  • Slightly OTM: 30-40% delta (cheaper, lower probability)
  • ITM: 70%+ delta (expensive, stock-like behavior)

Examples​

EXAMPLE

Successful long call:

Stock: $100
Buy: 105 Call, 60 DTE, premium = $3.00
Cost: $300
Breakeven: $108

30 days later, stock at $112:

  • Call now worth $8.50 (ITM + time value)
  • Profit: $550 (183% gain)
  • Stock gain: 12% vs option gain: 183%

Time decay scenario:

Stock: $100
Buy: 100 Call, 45 DTE, premium = $5.00

Stock stays at $100 (no movement):

  • Day 15: Call worth $3.50 (30% loss)
  • Day 30: Call worth $2.00 (60% loss)
  • Expiration: Call worth $0 (100% loss)

Lesson: Correct direction not enough - need magnitude + timing.

IV crush example:

Before earnings:

  • Stock: $100, IV: 80%
  • Buy 105 Call, 30 DTE, premium = $6.00

After earnings, stock moves to $107 (bullish):

  • IV drops to 40%
  • Call worth $4.00 (33% loss despite profitable move)

Vega loss exceeded delta gain. Never buy options before earnings.

Comparison: Stock vs Call leverage:

Scenario: Stock moves from $100 to $115 (+15%)

Buying stock:

  • Investment: $10,000 (100 shares)
  • Profit: $1,500 (15% return)

Buying calls:

  • Investment: $3,000 (10 contracts, $3.00 each)
  • 105 Calls now worth ~$11.00 each
  • Profit: $8,000 (267% return)
  • Capital efficiency: 18x better

But if stock goes to $95:

  • Stock loss: $500 (5% loss, can hold)
  • Call loss: $3,000 (100% loss, expired worthless) ```

References​