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Comment by thaumasiotes | Hacker News Reader

> long call options

> short put options

I tried to think of what a "short call option" or a "long put option" would be, and I don't think the concepts exist. Do they?

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If you buy a call option, someone has to be on the other side of the contract. They are the short position.

Sure, but they don't have a call option. All they have is an obligation.

Short just means they have a negative amount of that, in this case a negative amount of options.

No, short means your position is predicated on the idea that the future price of something will be lower than the current price.

Owning a positive number of put options makes you short the underlying stock, which is presumably why the comment upthread described put options as "short put options". Selling put options gives you a long position, not a short position.

I wanted to analyze this in terms of the original comment, in which "short put options" have limited upside and unlimited downside, but put options do not have unlimited downside for either the buyer or the seller. The buyer can't lose more than the price of the option, and the seller can't lose more than the strike price. Put options are a case of "limited upside, limited downside" from any perspective.

Call options are the ones with unlimited upside (for the buyer) and unlimited downside (for the seller).

You have to think of the futures definition of long and short, not the equities definition of short. In every futures contract, the long is paying money and the short is receiving it for the contract. Every options contract has a short, the writer, and a long, the buyer.

In this case, the original commenter explicitly (erroneously) stated "options". Options cannot have unlimited downside; you can always choose not to exercise the option.

If you write a put option, it has downside limited only by the underlying zero price of the security minus the premium. If you write a call option, your downside is theoretically unlimited. If you buy a put or a call your downside is limited to the option premium.

edit: i should say writing a put option (short put) your potential downside is the difference between the strike price of the option and the premium, if the underlying security goes to zero.

If the underlying security goes below zero, that doesn't increase your potential downside. The option you sold will force you to buy the security, but it won't force you to sell it.

Thanks for clarifying

> short means your position is predicated on the idea that the future price of something will be lower than the current price.

Yes, but in this case the "something" is the option, not the underlying. This is completely standard use of the word "short" in the finance industry.

Generally a “long call” would mean that you bought a call option. If you sell/write the contract, you’re short. Your position is in the derivative instrument itself, it's not cascaded onto the underlying.

I also know multi-layered derivatives such as options on options and options on futures exist (as I’ve written code for them), but I’m curious what they’re used for.

Options on futures are mostly just a convenient way to specify an option on the underlying product. Instead of having the option to buy gold bars (which trade on a different exchange), you have the option to buy gold futures, which has 99% the same behaviour in terms of price.

Options on options are pretty esoteric, I've never heard of anyone actually using one. I guess you can get very leveraged exposure to volatility that way, if that's what you need.

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