Buying a Call Option

B/S	Strike	Type	Price
Buy 1	$45	Call	$1.29
Net Debit			$129

A long call option gives the buyer the right to buy the underlying asset at the strike price. The option buyer pays a premium for this right to the seller of the option.

The Max Loss will only ever be the premium that is paid up front to buy the option.

The Max Gain is uncapped and will rise with as long as the underlying price rises.

Characteristics

When to use: When you are bullish on market direction and also bullish on market volatility.

A long call option is the simplest way to benefit if you believe that the market will make an upward move and is the most common choice among first time investors.

Being long a call option means that you will benefit if the stock/future rallies, however, your risk is limited on the downside if the market makes a correction.

From the above graph you can see that if the stock/future is below the strike price at expiration, your only loss will be the premium paid for the option. Even if the stock goes into liquidation, you will never lose more than the option premium that you paid initially at the trade date.

Not only will your losses be limited on the downside, you will still benefit infinitely if the market stages a strong rally. A long call has unlimited profit potential on the upside.