Long Call Strategy
What is a Long Call?
A long call gives you the right to buy a stock at a specified price within a set time period. This strategy:
- Offers unlimited upside potential
- Has limited risk (premium paid)
- Provides leverage compared to buying stock directly
- Can be used for speculation or hedging
Example
You buy a call option on Lloyds Bank:
- Current stock price: £0.45/share
- Strike price: £0.50
- Premium paid: £0.02/share
- Expiration: 3 months
If Lloyds rises above £0.52 (£0.50 strike + £0.02 premium), you profit. If it stays below £0.50, you lose the premium paid.
Risks
- Time decay works against you
- Need significant price movement to profit
- Option may expire worthless
- Implied volatility changes affect option value
Important: This strategy involves risk and may not be suitable for all investors. Always consider your financial situation and risk tolerance before trading.