What is difference between Long Call vs. Short Call?
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- Updated On:26-May-2021
- Replies:2
Short Answer
Short call and long call are the call option strategies and individuals buy or sell the shares. There are various differences between them and are important to be known. The elaborated version is described below.
Detailed Answer
INTRODUCTION:
Options are a form of preferential derivatives policy that allows the holder to buy or sell the key asset at a predetermined price before or after the agreement expires. The sellers pay a "premium" to option buyers in exchange for this right. They will purchase a call option on this asset and sell a put option on it. A ‘call option' is one that allows you to buy an option that will help you buy shares later, while a ‘put option' is one that allows you to sell an option that will help you sell shares later.
The 'Call Option' gives the choice investor the right to buy a particular asset at book value sometime before the maturity date in return for a premium charged in consideration to the seller. When we buy a ‘Call option,' we need and anticipate the price to rise because it will assist us in purchasing the commodity or commodity at a cheaper (pre-determined) price than the actual price, making it more desirable. It functions similarly to insurance in that you can upgrade it and then charge a pre-determined fee. It also has an expiration date. Long and short calls are call option techniques that literally involve buying or selling a call option.
LONG CALL:
A long call option allows you to purchase (or call) shares of a certain commodity at a predetermined price at a future date. It is a basic to understand and requires intermediate knowledge. It being bullish in nature shows that the investors do not want to take any sort of risk. It consists of Unlimited profit potential and has a very attractive strategy.
In case of expiration of long call out of the money, then it will just expire without being worthy or does not have value and in case of expiration of long call in the money, the stocks in the huge amount will be allocated to you at the finalized exercise price if you want to call in the stock.
SHORT CALL:
It is also called uncovered call or naked call. This is the exact opposite of long call and its very risky to be invested. It is difficult to understand, bearish in nature and requires experienced traders to deal with it. In this, the traders sell the stocks and has a very limited profit potential.
The strike price is quite close so there are chances that the options will expire in the money and suffer unbearable losses. The general intention of the investor is that they will let the options expire valueless.
DIFFERENCE BETWEEN SHORT CALL AND LONG CALL:
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Discussion (1)
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Harshil Patel
Long calls are nothing but going long on a trade. Meaning you have no intention to sell it but keep the trade for a couple of weeks if not months. Profits are unlimited based on your technical analysis. Short Calls are making profits in a bearish market by selling the shares on leverage. The profit margins are limited and mostly carried out in intraday trading.