How Buy Call Option? | What is a Call option and How we trade?
Buy Call
Buy Call (29 Hedging Strategies By Vinay Bhandari)
• How Buy Call option
• How to buy call option, Buying or “Going Long” on a Call is a strategy that must be devised when the investor is bullish on the market direction moving up in the short term.
• A Long Call Option is the simplest way to benefit if the investor believes that the market will make an upward move. It is the most common choice among first-time investors. “Being Long” on a Call Option means the investor will benefit if the underlying Stock/Index rallies. However, the risk is limited on the downside if the underlying Stock/Index corrects.
• Investor View: Bullish on the Stock / Index.
• Risk: Limited to the premium paid.
• Reward: Unlimited.
• Breakeven: Strike Price + premium paid.
• Illustration
• E.g. Nifty is currently trading @ 15500. The investor is expecting the markets to rise from these levels. So buying
• Call Option of Nifty having Strike 15500 @ premium 50 will benefit the investor when Nifty goes above 15550.
Strategy |
Stock /Index |
Type |
Strike |
Premium |
Buy Call |
NIFTY (Lot size 75) |
Buy Call |
15500 |
50 |
• The Payoff Schedule for the above is below.
• Payoff Schedule
Nifty @ Expiry |
Payoff |
15200 |
-3750 |
15300 |
-3750 |
15400 |
-3750 |
15500 |
-3750 |
15550 |
0 |
15600 |
3750 |
15700 |
11250 |
15800 |
18750 |
15900 |
26250 |
Payoff charts
In the above chart, the breakeven happens the moment Nifty crosses 15550, and risk is limited to a maximum of 3750 (calculated as Lot size * Premium Paid).
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