A long position is a trading term that defines the purchase of a security for example stock or option by a trader or investor with the goal of earning profits thanks to the security’s rise in value. Also referred to as long trading, it pertains to the act of an investor buying a position long.
When trading with options it is important to understand that any investor or trader expecting the price of a security to decline will choose to go long a put option while an investor or trader hoping to benefit from a price increase will go long a call option.
To better understand the above statement, here is a simple explanation:
i. Long call position refers to a trading move where the trader or investors buys a call option. The call option can be executed affecting the payout of the underlying security. While this happens, the long strategy of the trade will occur as the call option price increases. This means that the call option value rises when the security increases in value.
ii. Long put position refers to the buying of a put option which will increases in value when the underlying security declines in value.
How It Works
When a trader or investor chooses long trading, they will have to purchase an asset and own it. This is done with the expectation that its value will rise. Since the ownership of the stock is a key component in long trading, it differs from short position where traders and investors borrow the stock, sell it and buy it again at a lower price.
Here is a good example that explains the long position. Currently, it is speculated that Tesla will one day be the most valuable company in the world just like Apple. As an investor, you can capitalize on this speculation by purchasing a certain number of shares say 100, 1000 or more.
This means that you, the investor will increase your portfolio with Tesla shares and take a long position since you have no plans of selling now.
As you already know, trading with long positions is part of active trading and investing. It allows you to profit due to the increase in price from the asset you bought and is one of the most common ways of trading.