Hi friends. Finally we are done with the
Basics of Options. Today we will start the much awaited Options
Strategies. We will take one strategy at a time. Initial few strategies
are very very easy and I am sure most of you must be using them in your
daily trading. Irrespective of that, we will still cover those for our
friends who are new to the options trading. But I request you all,
please do not hesitate to ask questions if you have even the slightest
So without further delay let’s take up the first strategy and the easiest strategy.
STRATEGY 1 : LONG CALL
The long call strategy is the most basic
option trading strategy. In this strategy, the options trader who buys a
call option, believes that the price of the underlying security will
rise significantly beyond the strike price before the Options contract
This strategy is for aggressive traders
who are extremely bullish on the stock / index and want to exploit the
perceived upside trend with limited risk of loss.
When can we use this strategy??
We can use this strategy when we are extremely bullish on a stock or index
Risk involved while using this strategy
Risk is minimal and is only limited to
the premium at which we purchased the call. The maximum loss that we can
incur is the loss of the premium.
Benefits of using the strategy
Unlimited profits as the stock or index can rise to any level before the expiry.
When can we achieve the breakeven?
The break-even point for us will will be Strike Price + Premium
NIFTY is currently trading around 8100.
Let’s assume you are extremely bullish on NIFTY. So you buy one lot of
(In The Money) current month Call with 8200 strike price for a premium
of Rs. 30.
If the Nifty goes above 8200, you will
make a net profit (after deducting the premium) on exercising the
option. In case the Nifty stays below 8200, it will expire worthless and
you will make a maximum loss of the premium of Rs. 30 x The lot size.
The Analysis of the Strategy
The Long Call strategy limits the risk of the loss to the premium paid by us for a particular call option (Rs. 30 in our case).
But the potential to earn profits is
unlimited if the Nifty rises beyond 8200 strike price. This strategy is
the simplest way to earn money if you believe that the market will move
upwards. The point to be noted here is that once the call becomes
In-the-Money, it gains value very quickly as the underlying moves up.