10 basic options strategies

2. Call

Buying or selling a single call option is one of the two ways of expressing a pure directional bias in the underlying instrument.  A call gives the buyer the right, but not the obligation, to buy the underlying instrument at the exercise price. As almost every other type of strategy will use either short or long calls, it is important to understand this basic strategy.

Long Call: Gives you unlimited profit potential with limited downside risk. Profits rise as the market rises and will remain profitable as long as price remains above your option exercise price. Loss is limited to the premium paid for the option if it expires below A. An at-the-money call should move in value close to the underlying, however, an out-of-the-money call, though less expensive, will not increase in value on par with the underlying.  

Short Call: Also known as a “naked short,” a short call allows you to collect the premium for selling a call option. Because you are selling at just one exercise price, you potentially face unlimited risk if the market moves against you.

<< Page 3 of 11 >>
comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome