Positions on options


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Glossary Terminology of option positions may be confusing. This page may help clarify it.

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Sometimes people have a long put position they own puts and they say they are short. They mean their exposure to the underlying price movement is similar to a short position in the stock they expect to make a profit when the stock falls.

When To Roll, Hold, or Close Your Options Positions

But in fact the security they really own is the put option. For them to make a profitthe put option must increase in price, so they can sell it for a higher price than for which they have bought it. They are long the put option.

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Long Put Position When you buy and own a put option, you have a long put position. But being a different thing, your directional bias concerning the underlying is bearish, as the option you own increases in price when the underlying stock falls.

Bullish strategies[ edit ] Bullish options strategies are employed when the options trader expects the underlying stock price to move upwards. The trader may also forecast how high the stock price may go and the time frame in which the rally may occur in order to select the optimum trading strategy for buying a bullish option. The most bullish of options trading strategies, used by most options traders, is simply buying a call option.

Long Call Position When you buy and own a call option, you have a long call position. Your directional bias concerning the underlying is bullish, as the option you own increases in price when the price of the underlying stock rises.

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Short Call Position When you sell a call option with the intention to buy it back later for a lower price, you have a short call position. Your directional bias concerning the underlying stock is bearish, as the underlying stock going down makes the option you want to buy back cheaper, which makes you a profit.

Short Put Position When you sell a put option with the intention to buy it back later for a lower price, you have a short put position.

Combining Option Positions

Your directional bias concerning the underlying is bullish, as the underlying stock famous internet earnings up makes the option you want to buy back cheaper, which makes you a profit.

You want the security you have bought to increase in price, so you can sell it later for a higher price and make a profit. Whenever you sell something and hope you will later buy it back for a lower price, you are short.

Updated Jun 25, How can two trades have the same risk and reward when they look so very different? That's the frequent response when investors first learn that every option position is equivalent to a different option position. It does not mean the positions are identical.

The deciding factor for the long vs. It is useful to get familiar with the right terminology as early as possible.

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Assuming that you want to the principle of the ladder in binary options as much about options as possible in order to become competitive and survive in the markets, you will probably encounter other materials and books about options.

Knowing what all the basic terms mean will be necessary for you to understand what it is all about. For example, when dealing with option spreads and more complicated combinations of option positions, you will see terms like bull call spreadbear call spreador bull put spreadwhich all sound similar, but as you might expect they have significant differences critical for your profit and loss.

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You might even get to a situation when your online trading platform breaks down and you will have to call your broker in order to quickly close or adjust some positions on options your positions.

In such cases, mistakes in communication which might arise from using the wrong positions on options might cost you a lot of money.

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