Long Option Means You Are Buying

The long option is one in which you have taken a long position which means you are buying the option. You can buy a long call which is the right to buy an underlying asset or you can buy a long put which is a right to sell an underlying asset.

Buying Calls

Buying call options is one type of long option. When you buy the call option you are purchasing a right, but not an obligation, to buy the underlying future at a strike price as defined in the option contract. The value of the option increases when the underlying asset price increases. If the underlying asset price were to fall, time decay would erode the premium in addition to the loss of the asset value.

In other words, for the value of the long option to increase when buying calls, the market price of the underlying asset must be rising. That means you would be watching for a market that is trending upward.

Buying Puts

Buying put options is a second type of long option. When you buy the put option you are purchasing a right to sell an underlying asset at the strike price. The long put places you in a short position. In other words, you are buying the right to be short. To make money, the underlying asset has to move towards the strike price in the options contract.

The long option is commonly used by traders because there is limited loss on both the long call and the long put. The most you can lose on the long option is the premium plus any transactions costs.

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