Long A Call Option Definition And Example
What Does It Mean To Be Long A Call?
- Long A Put
- What are Options?
- What is a Call Option?
- What is a Put?
- In The Money Put
Definition of Being Long A Call:
An investor is said to be long a call option when he has purchased one or more call options on a stock or index. The term "going long" refers to buying a security (not selling one), and applies to being long a stock, long an option, long a bond, long an ETF and just owning an position. When you have a long position on any security, you want that security price to go up. This contrasts with the term "going short" which means that you have sold a security that you don't own and you expect that security price to decline.
When you are "long" you are hoping that the price of the underlying stock or index moves above the strike price of the option. When the stock price is above the strike price, the long a call position is "in the money." When the stock price is at the strike price, the option is said to be at the money." And when the stock price is below the strike price, the option is "out of the money."
Being long is opposite of being "short." The person that buys the call has a long position, but the person that sold or wrote it has a short position.
The person that is "long" wants the stock price to go up as much as possible so that his profit is maximized. The person that sold or wrote the call and is "short" and he wants the stock price to stay at or go below the strike price so that the option expires worthless.
Long Call Example
Example of being Long a Call: Suppose YHOO is at $40 and you think YHOO's stock price is going to up to $50 in the next few weeks. One way to profit from this expectation is to buy the YHOO 45 Calls. Once you own the YHOO $45 calls, you are said to be "long the calls" on YHOO. The seller of the YHOO calls, from whom you purchased it, is said to be "short calls."
Trading Tip: It is best to be long a call option when you expect a rapid increase in the price of the underlying stock. The biggest price movements on a percentage basis generally come around the time that the company releases its earnings. Four times a year companies release their quarterly financial statements and you should always be aware of a company's earnings release dates. If you think a company is going to release very strong earnings, then go long a call option!
Here are the top 10 option concepts you should understand before making your first real trade: