This is one of the basic strategies as it involves entering into one position i.e. buying the Call Option only. Any investor who buys the Call Option will be bullish in nature and would be expecting the market to give decent returns in the near future.
This strategy is implemented by a trader when he is neutral on the movements and bullish on volatility i.e. he expects the stock to move in either direction with high magnitude. This strategy involves buying 1 ITM Call Option and 1 ITM Put Option. This strategy can be called as Debit Spread because trader’s account is debited at the time of entering the positions.< ..
Upper Breakeven Point = Net Premium Paid + Strike Price of Long Call, Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid
LONG CALL Vs LONG GUTS - When & How to use ?
LONG CALL
LONG GUTS
Market View
Bullish (Any investor who buys the Call Option will be bullish in nature and would be expecting the market to give decent returns in the near future.)
Neutral
When to use?
This strategy work when an investor expect the underlying instrument move in upward direction.
This strategy is implemented by a trader when he is neutral on the movements and bullish on volatility i.e. he expects the stock to move in either direction with high magnitude.
Action
Buying Call option
Buy 1 ITM Call, Buy 1 ITM Put
Breakeven Point
Strike price + Premium
Upper Breakeven Point = Net Premium Paid + Strike Price of Long Call, Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid
LONG CALL Vs LONG GUTS - Risk & Reward
LONG CALL
LONG GUTS
Maximum Profit Scenario
Underlying Asset close above from the strike price on expiry.
Price of Underlying - Strike Price of Long Call - Net Premium Paid OR Strike Price of Long Put - Price of Underlying - Premium Paid
Maximum Loss Scenario
Premium Paid
Net Premium Paid + Strike Price of Long Put - Strike Price of Long Call + Commissions Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
LONG CALL Vs LONG GUTS - Strategy Pros & Cons
LONG CALL
LONG GUTS
Similar Strategies
Protective Put
Short Put Ladder, Strip, Strap
Disadvantage
• In this strategy, there is not protection against the underlying stock falling in value. • 100% loss if the strike price, expiration dates or underlying stocks are badly chosen.
• More commission involved than simply buying call or put option. • Expensive.
Advantages
• Less investment, more profit. • Unlimited profit with limited risk. • High leverage than simply owning the stock.
• Investors can get unlimited profit if the underlying asset goes up or down. • Ability to profit no matter if the market goes in either direction. • Limited loss.
