Long calls are not the same as short
puts. Buyers of option contracts are long, while sellers or writers of option
contracts are short. Call and put options give you the right to buy or sell the
underlying securities at specified prices, known as strike prices, before
predetermined expiration dates. Long and short option strategies have different
risk-return profiles, with downside risk usually limited for long positions.
Basics
The relationship between strike prices
and market prices determines profits and losses. A long call is profitable when
its strike price is below the market price of the underlying stock, while a
long put is profitable when its strike price is above the market price. The reverse
is usually true for short calls and puts. You pay a premium, which is the
market price, when you open or buy an option contract, and you receive the
premium when you sell or close an option contract.
