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Long Call Vs Short Call (Naked Call) Options Trading Strategy Comparison

Compare Long Call and Short Call (Naked Call) options trading strategies. Find similarities and differences between Long Call and Short Call (Naked Call) strategies. Find the best options trading strategy for your trading needs.

Long Call Vs Short Call (Naked Call)

  Long Call Short Call (Naked Call)
Long Call Logo Short Call (Naked Call) Logo
About Strategy A Long Call Option trading strategy is one of the basic strategies. In this strategy, a trader is Bullish in his market view and expects the market to rise in near future. The strategy involves taking a single position of buying a Call Option (either ITM, ATM or OTM). This strategy has limited risk (max loss is premium paid) and unlimited profit potential. When the trader goes long on call, the trader buys a Call Option and later sells it to earn profits if the price of the underlying asset goes up. When the trader buys a call, he pays the option premium in exchange for the right (but not the obligation) to buy share or index at a fixed price by a certain expiry date. This premium is the only amount at-the-risk for trader in case the mark... Read More Short Call (or Naked Call) strategy involves the selling of the Call Options (or writing call option). In this strategy, a trader is Very Bearish in his market view and expects the price of the underlying asset to go down in near future. This strategy is highly risky with potential for unlimited losses and is generally preferred by experienced traders. The strategy involves taking a single position of selling a Call Option of any type i.e. ITM or OTM. These naked calls are also known as Out-Of-The-Money Naked Call and In-The-Money Naked Call based on the type you choose. This strategy has limited rewards (max profit is premium received) and unlimited loss potential. When the trader goes short on call, the trader sells a call option and e... Read More
Market View Bullish Bearish
Strategy Level Beginners Advance
Options Type Call Call
Number of Positions 1 1
Risk Profile Limited Unlimited
Reward Profile Unlimited Limited
Breakeven Point Strike Price + Premium Strike Price of Short Call + Premium Received

When and how to use Long Call and Short Call (Naked Call)?

  Long Call Short Call (Naked Call)
When to use?

A long call Option strategy works well when you expect the underlying instrument to move positively in the recent future.

If you expect XYZ company to do well in near future then you can buy Call Options of the company. You will earn the profit if the price of the company shares closes above the Strike Price on the expiry date. However, if underlying shares don't do well and move downwards on expiry date you will incur losses (i.e. lose premium paid).

It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying.

Market View Bullish

When you're expecting a rise in the price of the underlying and increase in volatility.

Bearish

When you are expecting the price of the underlying or its volatility to only moderately increase.

Action
  • Buy Call Option

A long call strategy involves buying a call option only. So if you expect Reliance to do well in near future then you can buy Call Options of Reliance. You will earn a profit if the price of Reliance shares closes above the Strike price on the expiry date. However, if Reliance shares don't move up within the expiry date you will incur losses.

  • Sell Call Option

Breakeven Point Strike Price + Premium

The break-even point for Long Call strategy is the sum of the strike price and premium paid. Traders earn profits if the price of the underlying asset moves above the break-even point. Traders loose premium if the price of the underlying asset falls below the break-even point.

Strike Price of Short Call + Premium Received

Break even is achieved when the price of the underlying is equal to total of strike price and premium received.

Compare Risks and Rewards (Long Call Vs Short Call (Naked Call))

  Long Call Short Call (Naked Call)
Risks Limited

The risk is limited to the premium paid for the call option irrespective of the price of the underlying on the expiration date.

Max Loss = Premium Paid

Unlimited

There risk is unlimited and depend on how high the price of the underlying moves.

Rewards Unlimited

There is no limit to maximum profit attainable in the long call option strategy. The trade gets profitable when price of the underlying is greater than strike price plus premium.

Profit = Price of Underlying - (Strike Price + Premium Paid)

Limited

The profit is limited to the premium received.

Maximum Profit Scenario

Underlying closes above the strike price on expiry.

When underline asset goes down and option not exercised.

  • Max Profit = Premium Received
  • Max Profit Achieved When Price of Underlying <= Strike Price of Short Call
Maximum Loss Scenario

Underlying closes below the strike price on expiry.

When underline asset goes up and option exercised.

  • Maximum Loss = Unlimited
  • Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received
  • Loss = Price of Underlying - Strike Price of Short Call - Premium Received

Pros & Cons or Long Call and Short Call (Naked Call)

  Long Call Short Call (Naked Call)
Advantages

Buying a Call Option instead of the underlying allows you to gain more profits by investing less and limiting your losses to minimum.

This strategy allows you to profit from falling prices in the underlying asset.

Disadvantage

Call options have a limited lifespan. So, in case the price of your underlying stock is not higher than the strike price before the expiry date, the call option will expire worthlessly and you will lose the premium paid.

There's unlimited risk on the upside as you are selling Option without holding the underlying.

Rewards are limited to premium received only.

Simillar Strategies Protective Put, Covered Put/Married Put, Bull Call Spread Covered Put, Covered Calls, Bear Call Spread