Call in option trading

But a long position also has a specialized meaning, having to do with options and options trading.

Exercising Versus Selling

It refers to buying a specific kind of option, based on your belief as to where the price of a stock or another asset is headed. In the options-trading world, taking a long position , or going long, means you're purchasing an option. An option is a contract that gives you the right to buy or to sell shares for a preset price or "strike price" on or before a future date, usually within the next nine months.

It's an opportunity to do this trade, but not a commitment — so, an option. If you believe a certain stock is going to go up in price in the coming days, weeks, or months, you can purchase a long call option to buy that stock for today's price sometime in the future and make a profit by selling it on the stock market at the then- higher price.

If you believe a company's stock is due for a drop, you would purchase a long put option contract giving you the right to sell shares of that stock in the future for today's higher price.

Options Trading Guide: What Are Put & Call Options?

Example: You believe ABC is going to decline in a couple of months. Whether you buy a long call or a long put, you can't make money unless you exercise your option. Exercising your option means to buy or sell before the expiration date set in the option contract. Naturally, you'd exercise the option if things go the way you expect — the stock moves in the manner you thought it would, so you get to buy it with a call or sell it with a put at a price that's better than the current market rate. Why would you let the option expire without exercising it?

Simple: The price of the stock goes against your prediction, moving in an opposite direction from the strike price. If that happens, the option becomes worthless.

You let it expire, and you lose the premium you paid. Going long lets you take chances with less risk. Both long calls and long puts limit your loss to the premium, the cost of the options contract. You don't have to buy the stock in a call or sell the stock in a put unless you expect to profit — by the shares moving as you anticipated before the contract ends.

In contrast, in regular investing, you're committed to an actual purchase. And that could cause you to lose a lot of money if the stock doesn't move in the direction you expected. In addition to being less risky, long options also include an unlimited profit potential to the upside in the case of a long call option or the downside with a long put option.

As long as the stock is above or below your option's strike price — for the call or the put, respectively — you stand to win. Both types of options are considered long, in the sense that both are buy positions and both let you make money on the direction of the underlying stock. However, the long call is the more bullish sentiment, because you're betting that the stock price will rise. The long put option is a more bearish view because you're anticipating, and hoping to profit from, a fall in the stock price.

A long put option can also serve as a hedge, or insurance, against a bad outcome with a long call option or an outright purchase of stock. Yes, you're betting against yourself, in a way, but at least you stand to benefit a bit if the stock falls instead of rises, mitigating your overall loss. Long option positions require less investment, or cash down, than outright investments.

Instead of spending thousands on a stock, you just spend a few hundred on the option, giving you more leverage for less money. Of the two options, long calls are more common — or at least, what's more commonly thought of as a long options position. And, like buying stock outright, they are essentially optimistic. Long puts, pessimistic bets that a stock will fall, are more often used as insurance against a bad outcome with a long call, or with an actual ownership position.

Get the best rates

But in a way, both long options can be considered bullish: Both are buy positions, affording you a chance to make money on the moves of the underlying stock. Insider logo The word "Insider". The other benefit is leverage. When buying call options, you need to predict the correct direction of stock movement, the size of the stock movement , and the time period the stock movement will occur. This is more complicated than stock buying when all a person is doing is predicting the correct direction of a stock move.

To summarize, in this partial loss example, the option trader bought a call option because they thought that the stock was going to rise. If you already understand call options, you can explore some of our commodity guides to find a suitable asset to practice with, like precious metals , energies , and agricultural commodities.

Alternatively, you can see our stock trading guide. Buying call options has many positive benefits like defined-risk and leverage, but like everything else, it has its downside, which is explored on the next page. Putting percentages to the breakeven number, breakeven is a 6. That sized movement is possible, but highly unlikely in only 30 days. Plus, the stock has to move more than that 6.

Puts vs. Calls in Options Trading: What's the Difference? • Benzinga

Substantial losses can be incredibly devastating. Buying call options and continuing the prior examples, a trader is only risking a small 1. This prevents the trader from incurring a single substantial loss, which is a real reality when stock trading.

Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity.

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Please seek professional advice before making investment decisions. If you are interested in trading options and other financial products look at our reviews of these regulated brokers available in :. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

Also see our guide to choosing an online options broker. Traders who want to build an options strategy may find technical analysis guides on relative strength index RSI , volume indicators , and moving average convergence divergence MACD index useful.

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