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Ask the Institute

DATE: March 24, 2014

QUESTION:

Can you please define the term short? It seems that traders use the term short in different ways.

ANSWER:
A trader can use the term short in one of two ways. First, the term short can refer to having an obligation. If a trader is "short calls," this means he or she has an obligation to deliver shares of stock if the calls are assigned. Similarly, if a trader is "short puts," then he or she has an obligation to buy shares.

Second, the term short can refer to a bearish position. A bearish position is one that profits when the market falls in price. "Short stock" and "short calls," which refer to having sold stock short or having written call options, are bearish positions because they tend to profit when stock prices fall. A long put is also considered a bearish position. To learn more about the term short, view this segment of "Ask the Institute."


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