Position
Buy a Call Option
Margin Requirement
No, pay premium
Advantages
- Maximum futures price is established
- Lower futures price may improve your buying price
- Flexible, offset at any time, receive remaining value
- Maximum flexibility for adjustments to both higher & lower prices
Disadvantages
- Premium paid in full at time of purchase. Can be substantial for ATM or ITM call option
- Most expensive option strategy alternative
When to Apply
- If upside risk is undefined or hard to define
- If flexibility to participate in all lower prices is necessary
- If capital constraints require maximum pre-defined margin exposure
- If low implied volatility environment historically and/or seasonally
Potential Adjustment
- In a rising market, roll call up to a higher strike, and/or sell higher strike call against position to help offset initial cost by creating a credit
- In a falling market, roll call down to a lower strike, and/or sell lower strike put against position to capture savings from drop in price