Last update: August 2021

For the degenerate speculator, long calls are the best. They offer a leveraged payoff that keeps you coming back for more. Of course, that’s if you’re right. The challenge is they’re dang tricky to minimize loss with if prices sour.

But that’s a topic for another day. Today we’re talking about how to manage a winning long call. I have three ideas from simple to complex.

Let’s first set the stage. Like a good little soldier, you watched the March 3rd Options Report. During the wildly entertaining dialogue, your eye was caught, snagged like a trout, by the chart of Square Inc (SQ). Its high base pattern was teeming with potential, and you decided to buy two April $48 call options on Monday (March 5th) when SQ triggered. Your entry price (and initial risk) was $4.

With the stock now flirting with $55, you’re feeling the itch to take profits. The call has ballooned in value to $7.30, and you’re now facing a dilemma. Should you get out and watch SQ go higher without you? Or should you stay in and make it go down? Here are three ideas to satisfy your inner demons.

First, scale-out. You own two contracts so well one of them. This sets up a potential win-win. If the stock falls back from here, you’ll be happy you at least took half off the table. If it keeps running, you’ll be glad you still own half. Consider your fear and greed now sated.

Second, roll up. At the time of the breakout setup, your April $48 call sat slightly in-the-money. Now, with the stock at $55, your call is deep in-the-money. Your risk has now mushroomed from $4 to $7.30. If you want to reduce your exposure, but maintain the potential for more profits then roll up. That is, sell to close your April $48 call for $7.30 (locking-in a gain of $3.30) and buy to open the April $55 call for $2.80.

The new call will continue to rack-up gains if SQ gets jiggy with it. But if the stock swoons, then you now only have $2.80 at risk instead of $7.30.

Not bad, eh?

Third, roll to a call vertical (aka a bull call spread). Perhaps the smartest way to strike a balance between reducing risk and obtaining more gains is to modify your long call to a bull call spread by selling a higher strike call. For example, you could sell to open the April $55 call for $2.80. The $2.80 credit received would reduce your overall trade cost from $4 to $1.20. That means your max loss is now only $1.20 if SQ should somehow fall back below $48. Furthermore, you now own an April $48/$55 bull call spread. Since your cost for this $7-wide spread is only $1.20, you have an impressive $5.80 of potential gain.

Right now your long call is up $3.30 ($7.30 – $4) so that means you can still make another $2.50 of gain if SQ sits above $55 at expiration.

So there you have it, traders. A trio of win-wins to add to your long call playbook.

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If you’re a new trader, stick to your rules and try to process these concepts as you go. You don’t have to know everything to be able to follow your rules and make a trade. Generally, playbooks—like our own Trading Playbook (for PRO Members only) —are invaluable resources for new traders so that you don’t get your head spinning too much on the definitions.

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