What is a Long Position?

//What is a Long Position?
What is a Long Position? 2017-10-05T06:36:55+00:00

Definition: A long position indicates the purchase of a specified asset at a specified price with the expectation that the market price will rise so that profit is realized. The underlying asset may be a commodity, stock or currency.

What Does Long Position Mean?

What is the definition of long position? A long stock position allows an investor to buy an underlying asset and launch a position he believes will generate a profit. Some people confuse the long position with the long call. Going long implies that the investor owns the underlying asset and opens a profitable position expecting that the market price will rise.

Conversely, the long call involves ownership of the underlying asset, but the owner has the option to exercise or not his call if the market price rises. Going long can be constructed both will calls and puts.

Let’s look at an example.

Example

Nicholas owns 1,000 shares of company A, and he is thinking to open a long position on the stock because he believes that the stock price will rise over the next two weeks. Nicholas is following the market very closely, and therefore, he makes informed investment decisions.

Nicholas purchases 500 shares of company A for $85.23. Since he already owns the firm’s stocks, he is not buying a call option, but he is opening a long position, which means that when the company declares the quarterly dividend, Nicholas will receive a dividend payment as a shareholder.

Therefore, with the long position, Nicholas owns the stock and simply expects the market price to rise from $85.23 that he bought the 500 shares. Most of the times, owners of long positions do not plan to sell the underlying asset, but simply realize a profit. If Nicholas was an option holder, he would choose to exercise his option or not if the market price was rising above $85.23.

Summary Definition

Define Long Position: Long Position means a stock is purchased with the anticipation that the market will increase resulting in an increase stock value.