Long Calls

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Now that we’ve explained the differences between calls and puts here, let ’s take a closer look at long calls.

Going “long” on a call means you are on the buying side of the option contract. Essentially, you are the buyer of the call, and there is a seller on the other side of the trade who is writing the call.

As the buyer, you are betting that the price of the underlying stock will go up while the seller is simultaneously betting that the price of that same stock will go down.

After buying the call, your maximum profit on that particular contract is unlimited. Your best case scenario would be for the stock to continue to rise as much as possible before it expires.

As your contract gets closer to its expiration date (which can either be at the end of each week or on the third Friday of the expiration month), it will be up to you whether you want to sell out of your call and take your profits/losses or exercise the call upon expiration. Exercising the call means that you will be delivered the underlying shares of the stock from the seller at the agreed upon strike price that was set at the time of the trade.

If the trade doesn’t go your way, your maximum loss will be what you initially paid to the seller to buy the contract.

Long calls are the simplest form of options trading and the best way to get your feet wet when you first start trading options.