Long Options Position - Definition
To have a "Long Options Position" means to have ownership over a single or a group of options contracts.
Long Options Position - Introduction
What does it mean to be "Long" an options contract? How far away must the expiration date be in order for an options position to be "Long"? Or did I simply get the meaning of "Long" wrong in the context
of options trading?
Indeed, Being "Long" in options trading doesn't mean taking an options position with very long expiration. Being "Long" an options position is exactly the same as being "Long" a stock or being "Long" a futures contract and is opposite to a "Short Options Position". However, many beginners to options trading often misunderstand being "Long" as betting to upside because being long a stock or being long a futures contract means you are betting to upside on a bullish outlook (Read about the Six Directional Outlooks In Options Trading). This isn't necessarily true in options trading as being "Long" an options contract can also be a bet to downside depending on what options position is being put on.
What Does It Mean To Be Long In The Financial Market?
The terms "Long" and "Short" aren't unique to options trading. They are terms used in the financial markets across every single asset class. Being "Long" an asset class doesn't mean you are holding it for the long term neither does being "Short" mean you are only holding it for the short term. "Long" and "Short" in the financial markets refer to whether you are the "Buyer/Owner" or "Seller/Borrower" of a financial instrument. So when you are long a stock, you are actually the buyer and owner of the stock. When you are short a stock, you are actually the seller or borrower of a stock (borrowing in order to sell when you don't own the stock yet). This same logic applies to options trading.
What Does It Mean To Be Long an Options Contract?
To be "Long" an options contract means to be the "Buyer/Owner" of an options contract. You are "Long" an options contract when you BUY the options contract using the BUY TO OPEN order and has ownership of the contract. Yes, you use the BUY TO OPEN order to go "Long" on both call options and put options. When you are long an options contract, you own the rights to exercise the contracts and reap the benefits of price appreciation on the options contracts when the price of the underlying stock moves in the direction of favor.
When you are "Long" a call option, you own the rights to buy the underlying stock at the strike price anytime prior to expiration and benefit from price appreciation of the call option when the price of the underlying stock goes upwards.
When you are "Long" a put option, you own the rights to sell the underlying stock at the strike price anytime prior to expiration and benefit from price appreciation of the put option when the price of the underlying stock goes downwards.
As you can see above, depending on whether you are long a call option or put option, you could actually be making an upside or downside bet. As such, being "Long" in options trading does not necessarily suggest an upside bet like in stock trading or futures trading.
What Does It Mean To Be Long an Options Position?
Other than being "Long" a single options contract, you can also be "Long" an options position or options strategy consisting of a few different options on the same underlying stock. Yes, options contracts can be combined into many different options strategies. Within an options strategy, there could be both long and short options contracts combined to produce a specific payoff profile. Examples are the Straddle, consisting of BOTH long call and long put, and the Bull Call Spread, consisting of a long call and a short call.
In such situations, all the different options making up the options position or options strategy, are treated as a whole, just like how wheels, engine and chassis put together is known as a "Car". So being "Long" a particular options strategy such as the Bull Call Spread, means that you are in ownership of a Bull Call Spread which consist of a long call and a short call. As such, being "Long" an options position doesn't necessarily mean you are holding only "Long" options contracts but that you are holding ownership of a group of various long and short options contracts working together as a whole.
What Does It Mean To Be Long an Options Greek?
Other than being "Long" a single options contract or an options position, you can also be "Long" individual options greeks. Options greeks are the main mathematical variables that define how the price of an options contract changes. The 5 main options greeks are: Delta, Gamma, Vega, Theta and Rho.
Being "Long" an options greek is to own a position with that specific options greek at its default state. For instance, the default state of Delta, Gamma, Vega and Rho are positive, as such, to be long delta means to own a position with positive delta, to be long gamma means to own a position with positive gamma, to be long vega means to own a position with positive vega and to be long rho is to own a position with positive rho. However, for Theta where the default state is negative, to be long theta means to own a position with a negative theta.