A long position in an asset signifies that the investor owns the asset. On the other hand, when an investor buys a call option, he does not own the underlying asset. A call option derives its price from multiple factors, such as the underlying asset price, implied volatility and time decay.
A call option is a contract that gives the buyer, or holder, the right to buy the underlying asset at a predetermined price by or on a certain date. However, he is not obligated to purchase the underlying asset. For example, suppose an investor buys one call option on stock XYZ with a strike price of $50, expiring next month. If the stock price rises above $50 before the call option's expiration date, the investor has the right to purchase 100 shares of XYZ at $50. The buyer only owns a contract that allows him to buy a stock if he chooses to. Unlike an investor who has a long position in XYZ, he does not own any part of the company.
A long position in a stock is established when an investor buys shares of the stock with the belief that the stock price will rise. For example, suppose an investor purchases 100 shares of stock in XYZ at $40. He owns equity in the company, unlike an investor who purchases a call option on XYZ. A buyer of a call option does not receive the same benefits as a shareholder. For example, suppose XYZ pays a dividend. The investor who has a long position in XYZ will be paid a dividend, but the owner of the call option does not get a dividend because he is not a shareholder.