Long vs. short: the four basic positions
There are only four things you can do with a single option: buy a call, sell a call, buy a put, or sell a put. Every strategy — from a covered call to an iron condor — is just a combination of these four building blocks. Learn how each one makes and loses money and the rest is assembly.
The four positions
Long call (buy a call). You pay a premium for the right to buy. You profit if the underlying rises well above the strike; your loss is capped at the premium. Bullish, with limited risk and unlimited upside.
Long put (buy a put). You pay a premium for the right to sell. You profit if the underlying falls; your loss is capped at the premium. Bearish (or a hedge), with limited risk.
Short call (sell a call). You collect a premium and take on the obligation to deliver shares if assigned. You keep the premium if the underlying stays below the strike; your risk is unlimited to the upside if you don’t own the stock. Bearish-to-neutral, income-oriented, high risk uncovered.
Short put (sell a put). You collect a premium and take on the obligation to buy shares at the strike if assigned. You keep the premium if the underlying stays above the strike; your risk runs down to (strike − premium) × 100. Bullish-to-neutral, income-oriented.
Long and short are exact mirror images. If you buy a $100 call for $3 and I sell it to you for $3, your profit is my loss at every price, dollar for dollar. That is worth remembering: for every option buyer earning a payoff, a seller is on the other side with the opposite result. Options are a zero-sum transfer at expiration (before costs).
Buyers pay, sellers get paid — and take the risk
Buying options costs premium and loses value as time passes; the buyer needs a move to profit. Selling options collects premium and benefits from the passage of time; the seller profits if not much happens — but accepts a larger, sometimes open-ended, loss if the move goes against them. That trade-off — pay for a chance at a big move, or get paid to bear the risk of one — is the heart of options.
Common pitfalls
Selling naked calls without understanding the risk. An uncovered short call has theoretically unlimited loss. It is the single most dangerous beginner position.
Confusing “short put” with “bearish.” Selling a put is a bullish-to-neutral position — you want the stock to stay up so the put expires worthless.
What to do with this
Memorize the four: long call and long put risk only premium; short call and short put collect premium but carry the obligation and the larger risk. When you meet any strategy later, decompose it into these four legs and you will immediately understand its risk. Next: which strike you choose — moneyness.
Next lesson · continue the courseMoneyness: in-, at-, and out-of-the-money →
Every multi-leg strategy in the library is built from these four positions. See them combined in the Strategy Library.