Contents

Long CALL

Long CALL is a Bullish Option Strategy. It is set up by simply buying a CALL option which is preferably In-the-Money with delta around 0.8. A Long CALL is used when the price is trending upwards and when the market is extremely bullish. There are several other conditions that need to be met before you buy a CALL as you will be going against time decay. Those conditions are discussed below.

Trade Set-Up

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Long Call

Buy a Call Option

Naked Call-Finvezto

Illustration Using Nifty Options

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Long Call-Finvezto
Snapshot from Upstox.com Strategy Builder

In the pay-off graph above, the price of the underlying asset (Nifty) is plotted in the X-Axis and the profit/loss is plotted in the Y-Axis.

The black line with dots indicates the profit or loss at different prices of the underlying asset.

The region shaded in green indicates profitable zone and the region shaded in grey indicates loss zone.

A positive number (75 = Buy 1 lot) in the Quantity column indicates a Buy position and a negative number (-75 = Sell 1 lot) indicates a Sell position.

Entry Checklist

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Market Outlook
  • Enter only when the price is Extremely Bullish
  • Do not enter even if your view is moderately bullish
  • Price should have turned upside with momentum after hitting a support zone or it should have broken a resistance zone on the upside.
  • Volatility
  • Implied Volatility or India VIX should be low when you buy the Call Option
  • Open Interest
  • Open Interest Analysis is vital
  • Enter when short covering is happening or when there is long buildup
  • Short covering + Long Buildup is ideal for entry
  • Strike Price
  • Buy Call options that are In-the-Money. That is, Delta value of 0.8 or higher
  • In-the-money (ITM) options are more expensive than Out-of-the money (OTM) options
  • But, the premium increases on par with the underlying index or stock price
  • Exit the position, when the delta becomes less than 0.5
  • Positional or Intraday?
  • Do not hold weekly expiry CALLs overnight as there is a risk of huge Theta decay
  • Trade only Intraday in weekly options
  • Hold overnight only when you buy far month options
  • Alert: Beginner level traders buy Out-of-the-money (OTM) call options at a cheap price of Rs 1 or less and expect the value of the option to become 10 or 100 times in a short span. They do not understand that the probabilities are against them. You might not have the capital to sell options, but, it doesn't mean you will buy options and lose money. Please avoid buying call options if the above conditions are not met.

    Risk Profile

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    Risk [Loss]
  • Maximum Risk is limited to the premium paid
  • You cannot lose more than the premium
  • Reward [Profit]
  • Theoretically Unlimited, if stock price rises infinitely. But, practically limited
  • You can make 2X returns in a day if you choose the right strike price
  • You can even make 10X returns in a day. But, you need to enter at the right time and get everything right. Chances are low.
  • Break Even Point
  • Strike Price + Premium Paid
  • Options Greeks Impact

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    Time Decay Impact [Theta]
  • Time decay will erode premium and reduce the value of the Call option
  • Volatility impact [Vega]
  • If volatility increases after you enter, then premium will go up
  • If price also moves up along with volatility, then you are in for good profits
  • Price Impact [Delta]
  • As long as price is bullish and delta is above 0.8 you can hold the position
  • If delta becomes < 0.5, there will be quick erosion of premium
  • Trade Management & Exit

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    Stop Loss
  • Both Price and Time should be considered as Stop Loss
  • Suppose you bought a weekly CALL option for Rs 80
  • Exit when it becomes Rs 70 or exit after 10 mins, whichever comes first
  • Do not hold for more than 10 minutes if price is not moving in your direction
  • If price moves in your direction, trail your stop loss before exiting
  • Exit only through trailing Stop Loss. Otherwise, you will be limiting your profits
  • Exit
  • Exit when price of the CALL option falls by 10-15%
  • Exit when the delta becomes less than 0.5
  • Exit when price does not move in the desired direction for more than 10 mins when you are trading intraday weekly options.
  • Exit when price reaches a resistance zone
  • Exit through Stop Loss or Trailing Stop Loss
  • Alert: Do not over-Leverage. That is, do not buy huge quantities of OTM call options and expect price to move up significantly. You will lose significantly. The loss in the price of the CALL option should be limited to 10-15% and your position size should be such that the loss is less than 0.5% of your total capital. Remember, markets stay in ranges most of the time. They trend only one-third of the time or even lesser. So, buy CALLs only in trending markets.