When it comes to options trading, you have two choices: long or short. Long options give you the right to buy the stock at the strike price at any time before the expiration date, and short options give you the right to sell stock at the strike price, also at any time before expiration. Which should you choose? Here’s how to choose between long and short options based on your trading goals and risk preferences.
Why I decided to choose the long option
Of course, like many aspiring professionals, I wanted to get my Ph.D. But at some point, you have to make a decision between short-term profit or long-term stability. This can be a difficult decision, but in my case, it was fairly easy.
Reasons why people choose the short option
Shorter options can be cheaper. Shorter-term contracts offer less time to be held accountable, which can motivate you to put more effort into your job. When your contract expires, you’re free to work on a new project—or not work at all.
There are no restrictions on what else you can do while working on a short-term project, so there may be greater flexibility in scheduling both your and others’ activities.
All about long options
If you don’t have enough capital to make big trades, long options might be a good fit. Although they don’t offer as much leverage, they’re better suited to high-volume trading.
With long options, you can have more of an immediate impact on your position in stock – either positive or negative. And you may see greater percentage returns when trading in high volume with long calls and puts.
All about short options
Short options are great, but what if you can’t make it to your strike price before expiration? The solution for that is to buy an additional contract. However, there are a few things you should know about buying extra options before purchasing a long option.
For example, how do you determine how many shares of stock you will receive at expiration if you only have one option contract on a 100-share stock position? How do options add up with previously bought contracts when it comes time to exercise them all at once?
The best fit for you depends on your story and goals
Short-term investors tend to be more focused on short-term gains, so short options are ideal. If you want to minimize risk and maximize return, try a long option instead.
A long option gives you a bit more time to play with—investors have up to 180 days before their call or put expires—so you’re better able to take advantage of opportunities as they arise. And since long options have higher premiums than shorts, your potential gains are bigger too.