Profit Potential of Buying Call Options / Long Call Options :
Buying call options / Long Call Options allows you to profit with unlimited ceiling. That means that your profit grows as long as the underlying stock continues
to rise.
Profit Calculation of Buying Call Options / Long Call Options :
Profit = (Stock Price At Expiration - Strike Price Of Call Options Bought) - Premium Value Of Call Options Bought
Risk / Reward of Buying Call Options / Long Call Options:
Upside Maximum Profit: Unlimited
Maximum Loss: Limited
Net Debit Paid. The most one could lose is the entire amount put forward into buying call options when the underlying stock expires out of the money (OTM).
Break Even Point of Buying Call Options / Long Call Options:
Breakeven Point = Strike Price + Premium Value
Advantages Of Buying Call Options / Long Call Options:
Loss is limited if the underlying financial instrument falls instead of rise. This allows one to risk little money for the same moves
in the underlying stock.
It allows traders with different risk appetite and portfolio management strategy to pick call options with strike prices and delta
values that fulfills that trading objective.
It is excellent as a stock substitute where one could either control the same number of underlying stocks with very little money,
or allows one to leverage the profits to one's portfolio by replacing all stocks with call options.
It is the most basic option strategy where an option trader could simply transform into other option strategies in order to hedge
one's position by buying or selling more options.
It is a simple option strategy which requires no precise calculation to execute, unlike other complex option strategies.
As it involves buying only one kind of option, the commissions involved would be much lower than the rest of the other
complex option strategies.
As buying call options / long call options do not involve margin, unlike in a short call option strategy, literally any beginner
option trader can execute this simple option strategy.
As one contract of call option is very cheap, this is one option strategy where beginner option traders with very little money can
also participate in. In fact, this also allows stock traders to control stocks that are too expensive to buy.
Disadvantages Of Buying Call Options / Long Call Options:
There is the danger which you could lose all your money if you use all your money into this strategy and then the underlying stock
falls instead of rises, expiring the call options out of the money.
Call option premium is subjected to time decay, so the
value of the option actually depreciates daily until expiration. However, this is not a concern if one intends to hold the call options all the
way to expiration.
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