Looking to profit when a stock or other investment increases in value, but you don’t want to pay the full price? Then you may want to consider options. More specifically, here’s what you need to know about long call options.
What is a call option?
A call option is a contract between 2 parties, an option buyer and an option seller. This call option contract controls a specified number of shares that can be exercised at a specified price (the strike price) before a specified date (the expiration date). From the option buyer’s perspective, they can exercise the option to purchase shares of stock or ETF at the strike price or trade away the contract. Something you’ll often hear in options trading is that buyers are “long the option.”
From the seller’s perspective, if the call option is exercised, the seller is required to sell the underlying investment to the options buyer at the strike price, regardless of the current market price. While buyers are said to be “long,” those who sell the option are referred to as being “short.”
What is a long call?
A long call is an options strategy where you buy a call option because you expect the price of the stock, ETF, or other underlying asset to rise. The word “long” simply means you are the buyer of the option. By purchasing a call, you gain the right, but not the obligation, to buy the underlying asset at the strike price any time before the option expires.
Your maximum risk is limited to the money you paid for the option, commonly referred to as the “premium.” In contrast, the potential profit is theoretically unlimited, because there’s no cap on how high the underlying price can rise above the strike price.
If the stock moves higher, you can either exercise the option to buy shares at the strike price or sell the option itself for a potential profit. But if the stock stays below the strike price at expiration, the option expires worthless, and you lose the premium paid. Traders typically use long calls when they want bullish exposure with limited downside risk.
How does a long call work?
Stock price is above the strike price at expiration:
When the stock price finishes above the strike price at expiration, a long call is “in the money.” That means the option is worth something, because it lets you buy the stock for less than its market price. In this case, you can exercise the option and buy the shares at the strike price, gaining the difference between the stock price and the strike price (minus the premium you paid).
Many traders skip exercising and simply sell the option to lock in that value without buying the shares. Either way, once the stock ends above the strike; the option’s value comes from how far the stock is above that strike, the higher it is, the larger the potential profit.
Stock price is below the strike price at expiration:
When the stock price stays below the strike price at expiration, a long call ends up “out of the money.” That means the option has no real value, because it wouldn’t make sense to use the option to buy the stock at a higher strike price when the market price is cheaper.
In this case, the option simply expires worthless, and the long call buyer loses the entire premium paid. No shares are bought, and no further action is required; the loss is limited to the upfront cost of the option. For long call buyers, this is the trade‑off: While the upside can be large if the stock rises, the downside is capped at the premium if the stock never climbs above the strike.
An example of a long call
Stock is trading at $55
You buy a call option
Imagine a stock trading at $55. You think the price will rise, so you buy a $70 call for a $3 premium (which costs $300 since each contract controls 100 shares). Your breakeven at expiration is $73 ($70 strike + $3 premium). The stock has to rise above that level for the trade to be profitable if you exercise.
If the stock climbs to $80, exercising lets you buy shares at $70. That’s a $10 per‑share gain, or $1,000. However, after subtracting your $300 premium initially paid, your long call’s net profit would be $700.
If the stock stays below $70, the option expires worthless, and your maximum loss is the $300 premium you paid.
Remember: You don’t have to exercise the option. You can sell the option at any time before expiration. Many traders buy calls only to profit from the option increasing in value as the stock moves higher, then sell the option rather than buy the shares.
Note: These examples don’t include commissions, fees, or tax considerations, which may reduce overall returns.
Benefits of long calls
If you’re thinking about implementing a long call strategy, here are 2 main benefits to keep in mind:
- Uncapped potential profit: In theory, a long call could provide unlimited profit. Provided the strike price is met, it allows you to pay just the value of the strike price (plus any premiums and fees) for assets that could increase substantially in value. It’s worth noting that uncapped potential profit is also the case for owning the underlying stock in the first place.
- Less risk than owning an asset outright: The most you’ll lose when holding a long call option is the premium you paid for the contract (plus any applicable fees or commissions). If you own an asset outright, meanwhile, there’s the potential its value could fall to $0. Of course, the value of a long call can fall to $0 also, but losing 100% of the option contract is almost always less total money than losing 100% of the value of owning the stock outright.
That’s because long call options let you do more with less: a financial concept broadly known as “leverage.” Because long call options allow you to lock in the right to buy an asset at a certain price for much less than it would cost to own it outright, you can potentially benefit from its price rising without tying up a significant chunk of money to do so. This allows you to use funds you’d otherwise spend owning shares of something in other ways, like gaining exposure to other companies, industries, or investment types.
Disadvantages of long calls
If you’re going to buy a long call, make sure to understand these 2 downsides:
- Your option may expire worthless: There’s no guarantee that the price of the underlying asset will reach or exceed the strike price, allowing you to make a profit on your option contract. With any option contract, there’s a real risk that it will expire worthless, and you’ll be out your option premium.
- There are downsides to leverage: Although an option contract grants you exposure to potential price changes less expensively than owning a stock outright, that increased exposure also has a downside. First, option contracts force you to give up many of the benefits from owning the shares outright, such as dividends, or voting rights. Additionally, because option contracts can expire worthless if you’re wrong about your outlook, your loss buying an option can be bigger than if you were to own the stock outright. Generally, with any investment where you are trading with leverage, when you're wrong about your outlook, your potential losses are amplified.
How to buy long calls
If you’re interested in buying a call option and implementing a long call strategy, follow these steps.
- Open a brokerage account with option trading capabilities. To trade options, you need a brokerage account with option trading capabilities. If you don’t already have a brokerage account that allows for this, research potential fees and commissions that financial institutions charge to trade options before opening an account with them. Once you’ve got a brokerage account you can trade options with, don’t forget to fund it. That’s what will allow you to buy long calls.
- Apply to trade options. At many financial institutions, you must apply in order to trade options. At Fidelity, you must first complete an options application and be approved to trade options before you can buy long calls.
- Research investment options and place a trade. As with any investment decision, you’ll want to fully research any asset you’re hoping to buy a long call for. Once you have a stock or ETF in mind, you may want to explore option-specific research tools, like Fidelity’s Option Strategy Builder which can help you build and place an option trade. You may also check out your brokerage’s option chains. After you find a combination that works for you, you can start buying long call option contracts right on the option chain. Before executing any option trade, make sure to fully consider the strategy’s risks. Option trading should only be executed by those with full knowledge of the potential drawbacks.