The primary objective of employing a long equity call strategy is to capitalize on the anticipated appreciation in the value of the underlying asset. Investors who utilize this strategy believe that the asset's price will rise significantly above the strike price, more than the premium paid.

Trade Anatomy & Example:

Disclosure: Example for educational purposes only and does not include commissions and fees.

Imagine that you, as an investor, have a bullish sentiment toward ABC stock. You anticipate that ABC's current price of $100 will increase significantly, possibly reaching $110. With this sentiment, you decide to employ a long equity call strategy. Upon order entry, the trade is entered as ‘buy to open’ indicating that the long call is purchased to create, or in other words open, the position. Therefore, you buy to open 1 ABC $100 strike call for a premium of $3 ($300 total). This means you own the right to purchase 100 shares of ABC at $100 per share at any time through the expiration period and purchased this right for $3 per share.

Remember, an option premium is comprised of intrinsic value and extrinsic value. Which means that option’s price is affected by more than just the underlying security, time and implied volatility also impact the option premium. Understanding the external impacts helps establish a sentiment and entry and exit strategies.

Disclosure: Example for educational purposes only and does not include commissions and fees.

Impact of Time Value Depletion:

One critical aspect of long call options is time decay. The time value of the premium paid for the option (in this case, $3) diminishes as the option approaches its expiration date. This means that the longer it takes for the stock price to move in your favor, the more time value depletion will negatively impact your position.

Benefiting from Implied Volatility:

As a long call holder, you stand to benefit from an increase in implied volatility. When implied volatility rises, options premiums tend to expand. This means the long call holder may expect an increase in implied volatility.

Gain & Loss Scenarios:

To add clarity, let’s look at various scenarios when a long call is at a gain, loss and breakeven at expiration. Upon order entry, closing transactions are entered as ‘sell to close’ indicating that you intend to exit the position or in other words close the position.

Suppose ABC stock reaches your target price of $110 on the expiration date of the call option. In this scenario you hold an in-the-money option at expiration. An in-the-money option contains intrinsic or in other words, executable value.

At expiration, your contract is generally only worth its executable value. In this example, you hold an in-the-money option with $10 of executable/intrinsic value as you could execute upon the terms of the contract and buy ABC at $100 per share and immediately sell at the market price of $110 per share. This means that you should be able to sell to close your contracts for at least $10 per share. It is important to note that an option's price fluctuates through the day of expiration. By holding the option to the expiration date, you will have forgone any time value purchased.