What is typically the effect of a hedging strategy that utilizes a long call option?

A hedging strategy that incorporates a long call option provides the right to purchase the underlying asset at a predetermined price (the strike price) within a specific timeframe. This characteristic of call options allows investors to benefit from price increases in the underlying asset without the obligation to purchase it unless they choose to do so.

Utilizing a long call option can serve multiple functions in a hedging strategy. For an investor who has a short position in the underlying asset or another bearish position, a long call can act as a form of insurance. If the price of the underlying asset rises significantly, the call option allows the investor to mitigate potential losses by providing a means to effectively "buy back" into the asset at a favorable price relative to the market.

Moreover, this strategy does not increase the potential for loss, as the maximum loss is limited to the premium paid for the call option. Rather, it enhances the potential for upside gains while providing downside protection. Thus, the correct choice highlights the essential feature of the long call option in hedging scenarios.