And long call options only make them better.
So, what is a long call?
A long call gives you the freedom to set a price, weigh the market’s conditions as time passes, and even change your mind in the end.
Let’s talk more about what is a long call, how its strategy works, and how you can use it to generate profit.
What is a Long Call?
Long Call options are the exact very same call options, only with a special advantage.
But before we tell you about it, let’s have a refresher on what call options are.
Call options are derivative contracts between two parties.
And the reason for the existence of the contract is to note the strike price. This is the price the stock will be bought for.
Aside from that, the contract also contains an expiration date. This date determines how long the strike price will be valid.
Now, the special advantage of longcall options is that they don’t oblige you to purchase the stock. So if the stock’s market price doesn’t rise within the contract’s validity period, you can refuse the purchase to avoid any loss.
What is Long Call Option Strategy?
Now that you know what is a longcall option, let’s talk strategy-wise.
The purpose of call options is to freeze a stock’s price. Since both parties will agree on a price that will be valid within a period of time, a price difference from the market will form over time.
So, when the day comes that the buyer decides to finalize the purchase, the strike price may either be lower or higher than the stock’s current market price. This will lead to a generation of profit on either the seller’s or buyer’s side.
Diving deeper, the stock’s market price will fluctuate over time.
There may be a time within the contract’s validity period when the stock’s market price has risen greatly from the strike price. And the buyer may decide to settle the purchase, which is a classic longcall example.
On the other hand, some buyers think skeptically and choose to wait for the contract’s expiration. This is because they are hoping for a higher price difference.
In the end, the choice is yours.
Is LongCall a Good Strategy?
The quality of the long call strategy depends on a trader’s needs and plans of investment.
To avoid confusing a longcall with the long put option remember that calls are buying contracts.
The strategy is about timing and patience. Short-term investors would prefer to purchase the stock on the spot. But, a long-term investor would prefer a long call option to benefit from the passing of time.
The longcall strategy is more of an alternative to buying a stock outright. It allows you to weigh the market’s condition through the contract’s validity. And gives you the chance to contemplate your purchase.
The profit from longcall strategies is derived from the stock’s market rises. So you may refuse to finalize your purchase just in case the market goes in the wrong direction.
Long Call vs a Short Call
Now to avoid further confusion, let’s discuss what is long call and short call, contrast-wise.
The difference between the two doesn’t rely on the lengths of their contracts.
Instead, the difference is the buyer’s freedom over the underlying stock’s purchase.
Earlier we discussed long calls. We mentioned that they have the special advantage of not obliging the buyer to finalize the purchase.
When it comes to short calls, the contracts require buyers to settle the purchase on or within the expiration date. So in the long run, if the market goes against the buyer’s direction of profit, they would still have to make the promised purchase settlement.
Is the LongCall a Bullish or a Bearish Strategy?
Regardless of whether it’s a longcall or a short call, call options will always be a bullish strategy.
Call options are buying contracts, and so they are a bullish strategy since the generation of profit relies on the market price of the stock rising from the strike price.
So what is a longcall vertical if not a bullish strategy?