Long vs. Short
Being “Long” something means you own it. Being “Short” something means you have created an obligation that you have sold to someone else.
If I am long 100 shares of AAPL, that means that I possess 100 shares of AAPL. If I am short 100 shares of AAPL, that means that my broker let me borrow 100 shares of AAPL, and I chose to sell them. While I am short 100 shares of AAPL, I owe 100 shares of AAPL to my broker whenever he demands them back. Until he demands them back, I owe interest on the value of those 100 shares. You short a stock when you feel it is about to drop in price.
The idea there is that if AAPL is at $50 and I short it, I borrow 100 shares from my broker and sell for $5000. If AAPL falls to $48 the next day, I buy back the 100 shares and give them back to my broker. I pocket the difference ($50 – $48 = $2/share x 100 shares = $200), minus interest owed.
Call and Put options
People manage the risk of owning a stock or speculate on the future move of a stock by buying and selling calls and puts.
Call and Put options have 3 important components. The stock symbol they are actionable against (AAPL in this case), the “strike price” – $52 in this case, and an expiration, June.
