LONG CALL 

Long Call Option Trading Strategy is a very simple and very basic strategy that is the most used. whenever a trader, If the Nifty or Bank Nifty index is bullish in the market or any stock is bullish, then take call option of that index or call option of that stock for big profits by taking a small risk. The position created in this way is called LONG CALL.

For example, if Nifty index is going to rise then Nifty call option can be bought in “ at the money” or “in the money” call option and the call option can be sold after getting good profits.

Some important points before trading.

1. Whichever index or stock is going to rise, use that call option only. Buy side position should be created.
2. Both call option and put option are traded according to expiry, where we have to take trade keeping in mind the expiry day also.
3. Long call option strategy is a good trade for small risk and big profit, but the full premium we have paid to create the position is worth it. That is our total risk, where if we do not set a stop loss, we can suffer a huge loss. Therefore, we should create long call positions with capital equal to our risk appetite and we have to set stoploss.
4. Even, if the index does not rise after buying in the long call option trading strategy, we will still suffer a loss. But if the index falls, I will lose even more. Therefore, long call option strategy should be used only if 70 to 80% accuracy is there.
5. Before the market rises, buy the index or stock either “in the money” Option and avoid to trade “out the money” Option. Because you don't get much profit and if there is not much momentum then only loss occurs.

Let us easily understand with the help of option chain and also see the situation, what kind of profit we can get.

As shown in the option chain above, Nifty is trading at 24641, “At the money” option Nifty 24650 call option price is ₹54, today's date is 11th Dec 2024, and the weekly expiry of the Nifty index the date is 12th Dec 2024, so this option has 1 day to expire. Here we have plenty of time and the option price is also ₹54.

Currently, NIFTY LOT SIZE 25 & PRICE 24650 CALL  ₹54

TOTAL PREMIUM PAID (BUY POSITION)= 54×25= ₹1350

Maximum loss =₹1350 if stop loss is not applied

Maximum Profit = Unlimited profits can be earned, if the market continues to be bullish, or even if the target we have set before is achieved, we can earn profit.

Situation-1  If there is a rise in the market and the market goes above the level of 24700, As much the higher it goes, the more we will see profit in the call option. If the market goes above 24800, then we will see a profit of up to 100 points in the call option. But if the market goes up on the same day we have created the position, our profit will be in even more points.

For example, if the market closes at the level of 24800 at expiry, then it will be 24800-24650 =150 points, where the price of our call option is ₹54, then the Premium price is also minus. You will get a profit from the call option of 150-54=96 points and you can multiply your trading quantity.

Situation-2  If the market turns bearish and the market goes below 24650, then we will start making losses in the call option. If we do not set a stoploss and the market continues to go down, we may incur a huge loss on the position we have purchased.

For example, if the market closes below 24650 at expiry, then a trade of ₹1350 has been taken in a 24650 call option, then that trade will be a complete loss, and the price of the option at expiry will become zero. If we have not set any stop loss, we should use as much capital as we can risk to create a long call position.

Situation-3 If the market neither a bullish nor bearish, as we had thought based on the analysis, then we may suffer loss. As our loss is already happening estimated that is, the money we have invested in option buying, Same there will be loss. Therefore, only 10 to 15% of our total capital should be used in this strategy.

For example, if the market expiry is around 24650, then the call price at the time decay due to, it’s price will gradually reduce till expiry and it may come down to ₹10-12.

(To understand this more easily, please read Option Greeks which I have explained very well. Click here https://investexpert.app/dervative-course/lesson/6/option-greeks-delta-theta-gamma-vega
 

What should be the stop loss and target in a long call position? How much more money will be required?

You cannot immediately decide on a set stop loss and target in the option price as it depends on the market movements. If there is not much rise in the market then there is time in option decay due to (time decay) its value will reduce. So this price is not fixed at all, yet to have a common stop-loss and target, in whatever option we buy, around 50% of that price should be the target, and 30% should be its stop-loss for better risk management.

Whichever option is to be purchased to create a long call position? in lot size, we will multiply it by its current price and whatever price comes will be the total price charged for creating that position. For example as shown above, the call option price of Nifty 24650 is ₹54 and the lot size of Nifty is 25. So the total here is ₹54×25=₹1350 will be charged, similarly in Bank Nifty the lot size is 15 and the lot size and option price may be different in different stocks.