Long Call (Out-of-the-Money)

Sample Payout Diagram

Legs

• Buy Call, Strike A

Strategy Description

Buying a long out-of-the-money (OTM) call is a very simple option strategy. It shares many aspects of the Long Call ATM, but you're buying an out-of-the-money call instead. As a result, your initial cost is lower, but the stock must move a greater amount to the upside to profit.

An Example

If the stock price is $100, and you want to buy an at-the-money call on the $105 strike for $1, then the stock will have to go above $106 ($105 plus $1) for the trade to return a net gain. If the stock expires anywhere below $105, your maximum loss is capped at the amount you spent on the option.

When to Use It

A long out-of-the-money call is often used as a speculative upside play. It probably won't cost you much to buy, and the downside risk is capped no matter how far the stock drops, but if the stock price jumps up considerably, you could profit greatly.

Break-Even Points at Expiration

The break-even point is equal to the strike for the long call (strike A) plus the cost of the option.

Max Gain

The maximum gain is unlimited.

Max Loss

Your maximum loss is the amount paid for the option. If the stock is anywhere below strike A, you will lose the same amount of money.