Investors can establish securities such as stocks, mutual funds or currencies, or even in derivatives such as options and futures.
Holding a long position is a bullish view. A long position is the opposite of a short position also known simply as "short". The term long position is often used In the context of buying an options contract. The trader can hold either a long call or a long put option, depending on the outlook for the underlying asset of the option contract.
Key Takeaways A long—or a long position—refers to the purchase of an asset with the expectation it will increase in value—a bullish attitude. A long position in options contracts indicates the holder owns the underlying asset. A long position is the opposite of a short position. In options, being long can refer either to outright ownership of an asset or being the holder of an option on the asset.
Being long on a stock or bond investment is a measurement of short and long position in options. For example, an investor who hopes to benefit from an upward price movement in an asset will "go long" on a call option.
The call gives the holder the option to buy the underlying short and long position in options at a certain price.
Updated Apr 3, Long Position vs. Short Position: What's the Difference?
The most common meaning of long refers to the length of time an investment is held. However, the term long has a different meaning when used in options and futures contracts. Long Holding Investment Going long on a stock or bond is the more conventional investing practice in the capital markets.
With a long-position investment, the investor purchases an asset and owns it with the expectation that the price is going to rise. This investor normally has no plan to sell the security in the near future.
In reference to holding equities, which have an inherent bias to rise, long can refer to a measurement of time as well as bullish intent. Going long on a stock or bond is the more conventional investing practice in the capital markets, especially for retail investors.
An make money illegally that assets will appreciate in value in the long run—the buy and hold strategy—spares the investor the need for constant market-watching or market-timing, and allows time to weather the inevitable ups and downs.
Plus, history is on one's side, as the stock market inevitably appreciates over time. Of course, that doesn't mean there can't be sharp, portfolio-decimating drops along the way the Covid inspired fall in global equity markets that began in February is a prime examplewhich can be disastrous if one occurs right before stock market option investor was planning to retire—or needed to liquidate holdings for some reason.
Finally, going long in the outright-ownership sense means a good amount of capital is tied up, which could result in missing out on other opportunities.
The Difference Between a Long and Short Market Position
Long Position Options Contracts In the world of options contracts, the term long has nothing to do with the measurement of time. Instead, it speaks to the owning of an underlying asset. The long position holder is one who short and long position in options holds the underlying asset in their portfolio.
Video not supported! What is a Call Option? A call option is the right to buy the underlying futures contract at a certain price. Buying Calls When traders buy a futures contract they profit when the market moves higher.
When a trader buys or holds a call options contract from an options writerthey are long, due to the power they hold in being able to buy the asset. An investor who is long a call option is one who buys a call with the expectation that the underlying security will increase in value. The long position call holder believes the asset's value is rising and may decide to exercise their option to buy it by the expiration date.
But not every trader who holds a long position believes the asset's value will increase. The trader who owns the underlying asset in their portfolio and believes the value will fall can buy a put option contract.
They still have a long position because they have the ability to sell the underlying asset they hold in their portfolio.
The holder of a long put option believes the price of an asset will fall. They hold the option with the hope that they will be able to sell the underlying asset at an advantageous price by the expiry.
About Long and Short Positions
So, as you can see, the long position on an options contract can express either a bullish or bearish sentiment depending on whether the long contract is a put or a call. In contrast, the short position on an options contract does not own the stock or other underlying asset but borrows it with the expectation of selling it and then repurchasing it at a lower price. Long Futures Contracts Investors and businesses can also enter into a long forward or futures contract to hedge against adverse price movements.
A company can employ a long hedge to lock in a purchase price for a commodity that is needed in the future.
Exploring Long Positions
Futures differ from options in that the holder is obligated to buy or sell the underlying asset. They do not get to choose but must complete these actions. Suppose a jewelry manufacturer believes the price of gold is poised to turn upwards in the short term.
The supplier, in turn, is obligated to deliver the physical commodity when the contract expires. Speculators also go long on futures when they believe the prices will go up. Before expiry, a speculator holding a long futures contract can sell the contract in the market.
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