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As we have discussed earlier there are four types of Naked Option Strategies.
- Long Call
- Short Call
- Long Put
- Short Put
Firstly, let us start with ‘Long Call’.
A Long call is one of the most basic option strategy. It involves the purchase of a call option. It is a bullish strategy.
If the stock rises, you have unlimited profit potential with limited risk.
A premium of long call increases in value from a rise in the underlying stock and volatility expansion.
The premium of a Call declines in value from a decline in the underlying stock, time decay, and volatility contraction.
Below is the illustration of the payoff diagram of a Long Call Option
The key to becoming a successful option trader is to select the best strike price and time frame to match your risk profile and goals.
The higher the strike price of a call, the premiums are lower. And lower the delta, the greater is the leverage. At-the-money (ATM) and Out-of-the-money (OTM) options seem lucrative for option buyers.