Option Strategies --> Call Options
Long Call : Bullish Option strategy
Long call is most simple way to benefit with upside move in the underlying price.
The above call expires in next 24 days and costs 451 per contract.
Delta 68.16 : From this point, For every Dollar IBM stock moves, this option position gains or looses $68.16
Gamma: This is rate of Delta change. If IBM goes up by $1, new delta will be 73.09 (68.16 + 4.93)
Theta: For everyday this option is held, value goes down by 6.78 if everything else stays same.
Vega: If volatility of the option increases by 1 point, This option position gains $11.15
Pros and cons of Long call option strategy:
| Pros of Long call | Cons of Long call |
| Low cost to get in price apreciation. | Time decay is against call owner |
| Low risk. In above example, If BM goes down by $8.00, you loose only $500 with option vs $800 with stock. | Drop in volatility hurts the position. |
| Very simple strategy. Involves one leg. | |
| Best to protect against a short stock position. | |
| Increase in the volatility helps the position. |
Long option strategy is best if you are bullish on underlying and volatility is at or below its two year volty average. Choose 90 days or more in selecting option months. Prefer In the money as they have less time premium value.
Short Call : Bearish Option strategy
short call is simply the other side of the above example. The above call expires in next 24 days and gets 450 per contract.
Short call option strategy is best if you are bearish on underlying and volatility is at or above its two year volatility average. Choose 30 days or less in selecting option months. Prefer a the money as they have more time premium value.