Long Call: How It Works, Example and Risks
A long call buys the right to purchase shares at the strike. Traders use it for a bullish view with risk limited to the premium. The main risk is time decay: the stock must rise past breakeven before expiration.
At a glance
| Outlook | bullish |
|---|---|
| Level | beginner |
| Max profit | Unlimited |
| Max loss | Premium × 100 |
| Breakeven | Strike + premium |
| Greeks exposure | Positive delta, negative theta, positive vega |
| Ideal IV environment | Low IV |
Payoff diagram
Worked example
Buy the $100 call for $3.00 ($300). Breakeven is $103. At $110 at expiration, profit is ($110 − $100 − $3) × 100 = $700. At or below $100, you lose $300.
How to manage it
- Set an exit if the option loses half its value.
- Buy enough time for your thesis to play out.
- Take partial profits on strong moves.
Risks
- Can lose 100% of the premium.
- Theta erodes value every day.
- IV crush can hurt even when right on direction.
Questions
What is the most I can lose on a long call?
The premium paid — $300 in this example.
Why did my call lose money when the stock went up?
Time decay or falling IV can outweigh a small move.
Should I buy ITM or OTM calls?
ITM calls cost more but need a smaller move; OTM calls are cheaper but less likely to pay off.
Related
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