Introduction To Long Call Options

The chapter is on Long Call Options.

And it is one of the core strategies, especially for people who are starting out with a smaller size portfolio.

I want to first start with a brief recap on buying call options so that we can start this topic with clarity.

Recap On Long Call Options

When you buy a call option, we have the right to buy 100 shares at an agreed strike price. And in order to get this right - we have to pay an option premium.

Remember the risk profile graph of a long call option?

The Exit Plan Of Long Call

When we buy a long call - there are three possible exits:

1. The call option expires worthless
2. The call option is exercised, and you own 100 shares
3. The call option is sold away before the expiry date

The only exit I will use for call options is Number 3: Sell Away Before Expiry.

Here's a short video explaining why:

Here's why it looks like on the ThinkorSwim Platform.

So as a summary:

First off, I will never let an option expires worthless. I would away sell it away with a certain number of days to expiry. This is because, nearing the time to expiry - the time decay is very fast. And I wouldn't to fight against time.

As for the second option - exercising an option.

Exercising a call option will hardly make sense - because you are basically throwing away the extrinsic value of your option contract.

This leaves us with the only sensible choice - which is selling to close a call option.

What's Next

We have now went through a brief recap of the long call strategy - now it is time to dive into how we can actually execute the strategy as well as as to touch on the advantage and disadvantage of this strategy.

Note: One of the biggest reasons why the options hub was built as there were too many people who get burnt because of the lack of knowledge of how options works and its risks involved. This resource hub aims to equip beginner investors with the knowledge of options and how they can manage their risks when investing with options.