Long and short are terms you hear a lot in options trading. I can begin to count the number of times I have heard phrases like; long an “out of the money” call option or short an “in the money” put option or short an “out of the money” put option. In OptionAlpha Podcast #746 Kirk Du Plessis gives an short and easy to understand review of what these terms mean and who they are used in options trading. In this podcast he explains that Long basically means that you have a positive number of contracts in your account, typically that you’ve purchased contracts into your account. You either bought a call option, or you bought a put option. It doesn’t matter if they are in the money, out of the money or what their strike price or expiration dates are, what matters is you own them. So to close a deal and make a profit you need to sell them.
Short is the exact opposite, it means that you have a negative balance in your account or you sold option contracts that you don’t own and once again it doesn’t matter if they are in the money, out of the money or what their strike price or expiration dates are, what matters is you don’t own the option contracts you sold. So to close the deal and make a profit you need to buy them back.
I think this short simple Podcast contains a very important concept underlying all option trading, whether you trade spreads, straddles, Calender’s, butterflies or any of the innumerable types of Option spreads with creative names. Options trading is really based on buying selling option contracts the you own (Long) or the you don’t own (Short) and understanding these colorful terms is essential to understanding explanations of trading strategies.
To me personally, the trading strategies are not difficult to understand, and the terminology isn’t difficult to learn, but what’s difficult to understand is the idioms in option trading, which are unique to regions and countries. But I guess it can also be considered part of the fun.
Happy Trading,
✍🏼 Shortsegments
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References
Reviewed Podcast: OptionAlpha Podcast #748 by Kirk Du Plessis.
Author Bio
Kirk Du Plessis
Founder of Option Alpha, a Private Options Investing Company and Options Educations Source.
Kirk Du Plessis, Founder Options Alpha.
Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he’s a Full-time Options Trader and Real Estate Investor. He’s been interviewed on dozens of investing websites/podcasts and he’s been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.