Long Call Option Trading Strategy is a very simple and very basic Strategy, which 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 the 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 time 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.
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, the 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 trading “out the money” Option. Because you do not get much profit and if there is not much momentum then only loss occurs.

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

     As shown in the option chain above, Nifty is trading at 20969, “at the money” option Nifty 20950 call option price is ₹148, today's date is 10th Dec, and the expiry of Nifty index date is 14th Dec, so this option has 4 days to expire. Here we have plenty of time and the option price is also ₹148.

   NIFTY LOT SIZE 50 & PRICE 20950 CALL ₹148 

   TOTAL PREMIUM PAID (BUY POSITION) = 148×50= ₹7400

   Maximum loss =₹7400 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 20950, the higher it goes, the more we will see profit in the call option. If the market goes above 21100, then we will see a profit of up to 150 points in 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 21100 at expiry, then it will be 21100-20950=250 points, where the price of our call option is ₹148, then the Premium price that also minus. You will get profit from call option of 250-148=102 points.

   Situation 2 If the market turns bearish and the market goes below 20950, then we will start making losses in the call option. If we do not set a stop loss 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 20950 at expiry, then a trade of ₹7400 has been taken in 20950 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 sees a bullish nor bearish, as we had thought based on the analysis, then we may suffer a loss. As our loss is already estimated that is, the money we have invested in option buying, there will be a loss. Therefore, only 10 to 15% of our total capital should be used in this strategy.

   For example, if the market expiry is around 20950, then the call price at the time decay due to, its 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.)