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Long Call

Analyzing the risk profile of a long call strategy

Risk Profile & Summary

Standard Setup

Long calls are established by paying a debit for the desired strike.
Risk Profile: 50 Delta Long Call
A long call is a
strategy that reserves us the right to buy 100 shares at the strike price. Calls have a limited life-span, and in order to turn a profit, the share value must rise above the strike plus the debit paid before they expire. This gives them an extremely low
Long calls unlimited profit potential, and limited downside risk. The most you can lose is the amount you pay for them.

Why We Do This

Due to their low
we don't use long calls as a stand alone strategy. Long calls can be useful as a component of other option strategies. They are typically used to cap the upside risk of our

Summary

Assumption Bullish
A long call can profit when the share value rises. This, however, is dependent on the speed and magnitude of the rise in value.
Cost Basis Debit
The cost basis for a long call is equal to the total debit paid (plus
and fees). It is calculated by multiplying the price of the call by 100.

Cost Basis = Call Price × 100
POP Low
A long call has less than a 50% probability of profit. The farther
the call is, the lower its POP will be. Deep
calls will slowly approach 50% POP but never quite get there because of their
Capital Requirement Low
Low POP comes with low buying power requirements. Long calls can be used as a low capital (not necessarily low cost) bullish strategy.
Break Even (before commission and fees) The break-even for a single long call is calculated by adding the debit paid to the strike price. The lower the b/e, the better.

B/E = Strike + Debit
Maximum Profit Unlimited
Long calls are not capped on profit potential.
Maximum Loss Debit Paid
The maximum amount you can lose on long call is the total debit paid. This is calculated by multiplying the price of the call by 100.

Max Loss = Call Price × 100
Capital Allocation (per position) 0%
At Food for Theta, we will never buy long calls as a stand alone strategy due to their low probability of profit. Long calls will only be used as components of
to contain risk or reduce capital requirements.
Profit Target None
Since we won't be using long calls as a stand alone strategy, there is no profit target.
Delta (P/L rate of change) Dynamic, Positive
Long calls carry dynamic, positive delta. This means they are a bullish strategy with fluctuating delta. Delta increases to 100 as the share price rises, and decreases to 0 as the share price falls.
Theta (Time decay) Negative
Long calls are disadvantaged by the passage of time. As
nears, their extrinsic value will decay.
Vega (Implied volatility sensitivity) Positive
Long calls carry positive vega. This means they benefit from increases in
They lose value when volatility contracts.
Gamma (P/L Momentum) Positive
Long calls carry positive gamma which means their delta increases as the share price rises. In practical terms, they accelerate into profit, and slow into loss.

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