But you won’t have the cash for another three months. To make this clearer, let’s use a real world analogy… Let’s say you’re shopping for an antique grandfather clock and find the perfect one at the right price: $3,000. When the buyer of a long option exercises the contract, the seller of a short option is 'assigned', and is obligated to act. An option that gives you the right to buy is called a “call,” whereas a contract that gives you the right to sell is called a 'put.' Conversely, a short option is a contract that obligates the seller to either buy or sell the underlying security at a specific price, through a specific date. There is no obligation to buy or sell in the contract, but simply the right to “exercise” the contract, if the buyer decides to do so. Account Types & Investment Products OverviewĪ long option is a contract that gives the buyer the right to buy or sell the underlying security or commodity at a specific date and price.
