Anyone involved in options trading should dispense with these connotations. The holder of an option (i.e. the one who is entitled to exercise it) is always "long". The writer, on the other hand, who collects the option premium and must deliver (call) or buy (put) when the holder exercises the option, is always "short". The two terms refer exclusively to these positions, at least in options trading. In trading with shares and futures, the terms can be used in the "usual" way.

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The characteristics of a long call position

A long call position is opened by buying a call option. The holder of the position acquires the right to purchase the underlying asset at the strike price and pays for this right with the option premium, the amount of which depends mainly on the intrinsic value of the call, the remaining term to maturity and the volatility. The holder of the option will exercise his right if the underlying asset quotes above the strike price.

The seller of the option must then sell the pieces to the holder of the call option at the strike price. The latter, in turn, can immediately resell the pieces at the market price and thus realise the profit made. In practice, this diversions is circumvented by a cash settlement between the buyer and seller of the option.

A long call position reaches the break-even point when the price of the underlying asset exceeds the strike price by the amount of the option premium paid. For example, if the option premium is 6.00 euros and a strike price of 100.00 euros has been agreed, the holder of the long call position reaches the break-even point at a price of 106.00 euros. Strictly speaking, lost interest income must also be taken into account. Even if the price of the underlying asset is between 100.00 and 106.00 euros, the holder of the option will exercise it. Instead of a profit, a loss is then realised which is reduced in comparison to the expiry of the option.

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If the price of the underlying asset is below the strike price on the expiration date of the option, the option expires worthless. It does not matter how far out of the money the option is quoted. Conversely, however, the further the price of the underlying asset in trade bitcoin Exness is quoted above the strike price, the higher the profit made. The profit potentially achievable with a long call position is theoretically infinite, because the price of the underlying asset can usually assume theoretically infinitely large values.

Example:

Long call on XY share
Exercise/base price 100 EUR
Option premium: 6 EUR 

Break-even point (share price): >106 EUR
Reduced loss: >100Total loss: Maximum possible loss: 6 EUR
Maximum possible profit: Infinite

The characteristics of a short put position

A short put position is opened by selling put options. The writer collects the option premium and grants the holder of the put the rights associated with it. The writer must therefore buy the underlying at the agreed strike price if the option holder exercises his rights. The latter will exercise his right if the price of the underlying asset falls below the strike price and the put option thus has an intrinsic value.

The break-even point from the perspective of the writer is reached at the price at which the strike price is undershot by the option premium. Between the break-even point and the strike price, the profit from the position increases. The maximum profit is reached when the strike price is reached and corresponds to the option premium. If the price of the underlying asset continues to rise beyond the strike price, this does not lead to further profits. The maximum loss is the difference between the strike price and 0.00 Euro.

Example:

Short put on XY share
Exercise/base price 100 EUR
Option premium: 6 EUR

Breakeven point (share price): 94 EUR
Reduced profit: 94-100 EUR
Losses from: Maximum possible loss: 94 EUR
Maximum possible profit: 6 EUR

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