What Is a Bull Position?
A bull position, also known as a long position, is one where the investor profits when the price of the investment rises.
When prices rise, a bull position becomes increasingly profitable. If prices fall, the bull position decreases in value.
- A bull position, also known as a long position, is one where the investor profits when the price of the investment rises.
- The term bull position is synonymous with the term long position, while bear position is synonymous with short position.
- Bull positions are required for buy and hold investments, and are more commonly used than bear positions.
- In addition to buying shares directly, investors can also adopt bull and bear positions through the use of options.
Market Mentalities: Bulls Vs. Bears
How Bull Positions Work
An investor has a bull position when they buy a security and expect its price to rise in the future. Bull positions are the most well-known type of position and are typical of buy and hold investment strategies.
The buy and hold approach involves buying stocks and holding them for a long period, regardless of whether the price rises or falls in the short term. To be comfortable remaining invested for the long term, buy and hold investors often carry out extensive research into the fundamentals of the stocks they buy.
A bull position is the opposite of a bear position. While a bull position is one where the investor expects the price to rise, a bear position is one where the investor expects its price to fall. These bear positions are also known as short positions because they are commonly executed by short selling the security in question.
The terms bull position and bear position are synonymous with the terms long position and short position, respectively. However, the latter terms are more commonly used.
Bear positions are arguably more risky than bull positions because they can require the investor to assume unlimited potential risks in exchange for limited potential rewards. For example, if an investor enters into a bear position on a stock trading at $30, the most they can gain is $30 per share (if the stock goes to $0), while the most they can lose is infinite, since the stock can theoretically rise in price indefinitely.
In addition to taking bull or bear positions in stocks directly, investors can also use options. For example, call options give the investor the right (but not the obligation) to buy 100 shares of a particular stock at a specified price, known as the option’s strike price. Options can be purchased at a market price which incorporates a premium paid to the option seller. The option can be exercised up until a specified expiration date. Call options can provide flexibility, lower initial costs, and the potential for larger gains. On the other hand, they lose their value if they are not exercised before their expiration date.
Real World Example of a Bull Position
Emma is a buy and hold investor who is bullish about the prospects of ABC Corporation. After thoroughly reviewing ABC’s financial statements, management team, and industry prospects, she decides to adopt a bull position in ABC shares. As such, she purchases 100 shares of its stock at $20 per share. As a buy and hold investor, she expects her shares to rise above $20 in the long term, and she will not worry if the shares drop below $20 in the short term.