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## Long and Short Options

September 10th, 2007

The book primarily uses “Purchased and Written”, but the test writers for some reason decided to use “Long and Short”.  Just remember if you are “long” in a option, that is the same as a “purchased” option.  If you are “short” in a option, that is the same as a “written” option.

1. September 11th, 2007 at 06:27 | #1

James,

What about a written put? Based on the graph in the text, it is a long position; it benefits when the price goes up. Can you clarify?

2. September 11th, 2007 at 06:41 | #2

Great question! If you look at the graphs on page 44 and page 53, you will see the graph for a written put and short put are the same. You do not have a short position in the stock, in the sense that you benefit if the stock price goes down, rather you have a short position in the put.

Just remember, “long (option)” = “purchased (option)” and “short (option)” = “written (option)”.

3. October 8th, 2007 at 21:09 | #3

Just to clarify (because this is still a bit hazy for myself as well) a written put is considered a long option because you may be buying the asset at a pre-determined price, so if the asset’s value is higher than the strike price at the time of expiration, the seller won’t exercise the option to sell at a lower price than the market offers. In that sense, as the writer of the put option, you have a long position because you want the value to increase to at or above the strike price in order to keep the premium in full as your profit.

Is this correct? Thanks!

4. October 9th, 2007 at 06:38 | #4

Right, you are “long in the asset”, but “short in the option”. So if the problem says you “short a put option”, then that means you “wrote a put option”.

I could also see one of those which of the following is false problems with the following statement:
- If you write a put option, then you are long in the asset.
That would be a true statement.

I hope that makes sense.

5. October 13th, 2007 at 11:04 | #5

Is it therefore safe to assume that on the exam, the positions (long call, long put, short call, short put) are always with respect to the option and NOT the underlying asset even if this is not explicitly stated?

6. October 13th, 2007 at 18:12 | #6

Yes, it is safe to assume they are with respect to the option unless stated otherwise.