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)


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

1 Comments

1. Justin Gilead

| Link|Aug 16, 2022 8:47:47 PMReply

You partially get it wrong! The max loss will be the equivalent of the call premium paid for a single call position, indeed ; for a synthetic call options, it will be likened to the call options premium that you actually haven't paid as the call position has just been replicated along with the help of a long put and a long underlying though. For instance, if you purchase an ITM put, in addition to the long underlying, then the overall cost will be quite high, but the max risk entailed in the position will be the equivalent of the cheap OTM call options (only time value) that stands on the other side and on the same strike. In short, you may pay more to risk less with a synthetic options ; it definitely does the trick for hedging purposes then.

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