Short and Long Position in Option

Question: I am confused by how the short/long positions in an option resulting in profit/loss. Please help! Thanks!

Answer: Shorting an option means you are selling the option. It means the one who buys (longing the option) has the right to exercise the option in the future.

So, if it is a call option, it means the buyer has the right to buy a stock at the exercise price. As a result, if the underlying stock price rises, the one who longs the option will earn money and the one who shorts the option will lose. You can see longing a call option is just like longing a stock.

On the other hand, if it is a put option, the one who buys the option (long the option) will have the right to sell a stock at the exercise price. If the stock price falls below the exercise price, the buyer of the option will earn money but the seller will lose. So, longing a put option is just like shorting a stock.

Just remember: long means you expect the price to rise, so you buy it now. Short means you expect the price to fall, so you sell it now. But make sure you know it is the price of stock or options.