I am having trouble with options.
Long call, i know it means you buy the right to buy an asset. Long put, you buy the right to sell an asset. What is confusing the the short call and short put. What does it mean you sell the right to buy and sell the right to sell?
http://www.optiontradingtips.com/strategies/short-call-option.html
http://www.optiontradingtips.com/strategies/short-put-option.html
I understand the confusion with options terminology. When it comes to options, understanding the difference between long and short positions is important. Let me explain.
A long call refers to a position where an investor buys the right to buy an underlying asset at a predetermined price within a specified time frame. This gives the investor the opportunity to profit from an upward price movement in the asset.
On the other hand, a long put means the investor buys the right to sell an underlying asset at a predetermined price within a specific timeframe. This allows the investor to benefit from a downward price movement in the asset.
Now, let's move on to short positions.
A short call, also known as writing a call, involves selling (or "writing") the right to buy an underlying asset at a predetermined price within a specific time frame. When you are "short" a call, you are essentially taking the opposite side of a long call position. By selling the call option, you are obligated to sell the underlying asset if the option is exercised by the buyer.
Similarly, a short put, or writing a put, means selling (or "writing") the right to sell an underlying asset at a predetermined price within a specific time frame. By being "short" a put, you are taking the opposite side of a long put position. If the put option is exercised, you would be obligated to buy the underlying asset.
In both short call and short put positions, you are selling the rights to someone else. Essentially, you are acting as the option seller, granting someone else the opportunity to exercise the option. As the option seller, you receive a premium upfront for taking on this obligation.
It's important to note that while being "long" an option gives you the "right" to exercise the option, being "short" an option means you are "obligated" to fulfill the terms of the contract if the option is exercised by the other party.
I hope this clarifies the concepts of long and short positions when it comes to options.