DEFINITION of Bull Position
A bull position is a long (positive) position in a security. A bull or long position seeks to profit from rising prices in certain securities. When prices rise, a bull position becomes increasingly profitable. If prices fall, the bull position decreases in value.
Market Mentalities: Bulls Vs. Bears
BREAKING DOWN Bull Position
A bull or long position is the most well-known type of position and is typically used in "buy and hold" investing. Buy and hold is a strategy that entails an investor buying stocks and holding them for a long period, regardless of fluctuations in the market. Because of the investor’s commitment to the stock for an extended period of time, buy and hold strategies with bull positions require deep analysis on the part of the investor.
The investor will usually spend time researching the industry that the company is part of, other macroeconomic trends, as well as the intrinsic characteristics of the company itself, including its management, financial results, additional metrics of performance (e.g., weekly or monthly active users for a growing tech company), and financing, including leverage. An investor who employs a buy-and-hold strategy actively selects stocks yet is less concerned with short-term price movements and technical indicators.
Bull Position Versus Bear Position
A bull position is the opposite of a bear position. While a bull position is a trade or investment that an investor initiates in the hopes that the instrument's price will rise, an individual or institution will initiate a bear position (often called a short position), believing the security will fall in price. Bear positions are often riskier than bull positions and more difficult to get right. Short-selling puts the investor into a position of unlimited risk and a capped reward. For example, if an investor enters into a short position on a stock trading at $30, the most she or he can gain is $30 per share (stock to go to $0), while the most she or he can lose is infinite, since the stock can theoretically rise in price indefinitely.
Bull Position and Call Options
An alternative way to initiate a bull position can include buying call options. Call options give the holder (purchaser of the option) the right to buy 100 shares of an underlying stock at a specific price, known as the option’s strike price. The option is good up until a specified date, known as the expiration date. The premium of the call option is its market price. A call option can provide advantages such as flexibility, a lower initial cost, and potentially large gains. If at expiry the underlying asset is below the strike price, however, the call buyer loses the premium paid.