Long and Short Positions

Free Tutorial and Video

Long Positions

Having a “long” position in security means that you own the security. Investors maintain “long” security positions with the expectation that the stock will rise in value in the future. The opposite of a “long” position is a “short” position.

In a long (buy) position, the investor is hoping for the price to rise. An investor in a long position will profit from a rise in price. The typical stock purchase is a long stock asset purchase.

A long call position is one where an investor purchases a call option. Thus, a long call also benefits from a rise in the underlying asset’s price.

A long put position involves the purchase of a put option. The logic behind the “long” aspect of the put follows the same logic of the long call. A put option rises in value when the underlying asset drops in value. A long put rises in value with a drop in the underlying asset.

Short Positions

A "short" position is generally the sale of a stock you do not own. Investors who sell short believe the price of the stock will decrease in value. If the price drops, you can buy the stock at a lower price and make a profit. If the price of the stock rises and you buy it back later at a higher price, you will incur a loss. Short selling is for the experienced investor.

A short position is the exact opposite of a long position. The investor hopes for, and benefits from, a drop in the price of the security. Executing or entering a short position is a bit more complicated than purchasing the asset.

In the case of a short stock position, the investor hopes to profit from a drop in the stock price. This is done by borrowing X number of shares of the company from a stockbroker and then selling the stock at the current market price. The investor then has an open position for X number of shares with the broker, which has to be closed in the future. If the price drops, the investor can purchase X amount of stock shares for less than the total price they sold the same number of shares for earlier. The excess cash is their profit

How to Learn Financial Modeling

Master financial modeling with hands-on training. Financial modeling is a technique for predicting the financial performance of a business or other type of institution over time using real-world data.

Yelp Facebook LinkedIn YouTube Twitter Instagram