What is a Long (or Long Position)
A long (or long position) is the buying of a security such as a stock, commodity or currency with the expectation that the asset will rise in value. In the context of options, long is the buying of an options contract. An investor that expects an asset’s price to fall will go long on a put option, and an investor that hopes to benefit from an upward price movement will be long a call option.
A long position is the opposite of a short (or short position).
BREAKING DOWN Long (or Long Position)
With a long position investment, the investor purchases an asset and owns it with the expectation that the price is going to rise. He normally has no plan to sell the security in the near future. A key component of long position investment is the ownership of the stock or bond. This contrasts with the short position investment, where an investor does not own the stock but borrows it with the expectation of selling it and then repurchasing it at a lower price. A key difference between a long position and a short position in investments is what the investor expects to happen to the price of a commodity.
For example, let's say Jim expects Microsoft Corporation (MSFT) to increase in price and purchases 100 shares of MSFT for his portfolio. Jim is therefore said to be long 100 shares of MSFT. Going long on a stock or bond is the more conventional investing practice in the capital markets.
One can also go long on options contracts. Buying a call options contract from an options writer entitles you to the right, not the obligation, to buy a specific asset for a specified amount at a specified date. An investor who is long a call option is one who buys a call with the expectation that the underlying security will increase in value.
Consider a November 17 call option on Microsoft with a $75.00 strike price and $1.30 premium. If Jim is bullish on the stock, he may decide to purchase or go long one MSFT call option (one option = 100 shares), instead of purchasing the shares outright like he did in the previous example. At expiry, if MSFT is trading above $75.00, Jim will exercise his right on his long option to purchase 100 shares of MSFT at $75.00.
Taking a long position does not always mean that an investor expects to gain from an upward movement in the price of the asset or security. In the case of a put option, a downward trajectory in the price of the security is profitable for the investor. Another investor, Jane, who currently has a long position in MSFT for 100 shares in her portfolio but is now bearish on MSFT takes a long position on one put option. The put option is trading for $2.15 and has a strike price of $75.00 set to expire November 17. At the time of expiry, if MSFT drops below $75.00, Jane will exercise the long put option to sell her 100 MSFT shares for the strike price of $75.00.
Investors and businesses can also enter into a long forward or futures contract to hedge against adverse price movements. A business can employ a long hedge to lock in a purchase price for a commodity that is needed in the future. Suppose a jewelry maker believes the price of gold is poised to incline upwards in the short term. The business can enter into a long futures contract with its gold supplier to purchase gold in three months from the supplier at $1,300. In three months, whether the price is above or below $1,300, the business that has a long position on gold futures is obligated to purchase the gold from the supplier at the agreed contract price of $1,300. The supplier, in turn, is obligated to deliver the physical commodity when the contract expires.
Speculators also go long on futures when they believe the prices will go up. They don’t necessarily want the physical commodity, as they are only interested in capitalizing on the price movement. Before expiry, a speculator holding a long futures contract can sell the contract in the market.
In summary, going long on stocks, bonds, futures and forwards, indicates that the holder of the long position is bullish. However, a long position on options expresses either a bullish or bearish sentiment depending on whether the long contract is a put or a call.