# A couple of simple questions



## rapidex (5 July 2007)

I'm brand spanking new to options, so go easy.

I've a couple of questions that I believe I already know the answer to, but just want confirmed using the following option as an example:

Long 1 Oct SUN $20.34 Call @ $0.78

(A) 1 AUS option controls 1000 shares and 1 US option controls 100 US shares. So the above Call would cost me $780 (and that's the minimum I could take this position for). And if this was a US option (just for argument's sake) I could take a position for $78 (being the minimum again). Is this correct?

(B) A Bull Call Spread is the same as a Long Call Spread?

Thanks - thats it for now.


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## AnalysisParalysis (6 July 2007)

You've got it right with the options thing. I've never traded the US, but I guess if they are 100 shares per contract, then your calculations would be correct.  

There are 2 basic types of call spreads. The bull call spread, and the bear call spread.

Bull call spread involves buying a call, then selling a call further out (higher strike) to offset the cost of the bought call. As far as being long, the one you bought is the long "leg" of the spread, as you have gone long a call. The higher strike call is the one you have gone short on.

So, in spread trading you are both long and short. Long and short refer to whether you have bought or sold an option. In spreads, you do both.

In the bear call spread, you go short (sell) the call, then go long (buy) the call with a higher strike for protection. Again, you're still long and short, just switched around based on your directional view. 

Hope that explains it.


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## rapidex (6 July 2007)

Thanks AP

So is a Bear Call Spread short ?

I'm getting confused as to whether Bull & Bear or Call & Put determines whether you are long or short (brain no function today).


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## professor_frink (6 July 2007)

rapidex said:


> Thanks AP
> 
> So is a Bear Call Spread short ?
> 
> I'm getting confused as to whether Bull & Bear or Call & Put determines whether you are long or short (brain no function today).




referring to the directional bet you are taking, yes, it's a short position.


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## wayneL (6 July 2007)

Here's where the confusion lies, you can be long an option and short the market as in the case of a bought put. A bear call spread is short the market, but contains both short and long option positions.

Option traders don't really talk in terms of being short or long the market as the strategy will already identify that. e.g. A bear call spread, already implies that it's short the market by the use of the word "bear"... and I know that you are long calls and short calls of a lower strike. 

Another example is if an option trader says he/she is short puts. I already know he/she is neutral/long the market. It need not be said.

However when learning options it IS handy to think in terms of whether a strategy is long/short/neutral. Most books will have some sort of appendix with the strategies listed with their long/short/neutral bias as a quick reference.

Long call = long the market
Short call = short/neutral the market
Long put = short the market
Short put = long/neutral the market
...and so on


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## porkpie324 (6 July 2007)

Confusions the word alright with options coupled with thin trading I just can't get my head around them, much prefer CFDs.porkpie


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## sails (6 July 2007)

The ASX website has some info on different types of strategies here: http://www.asx.com.au/investor/options/how/library/index.htm


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## acooper (7 July 2007)

I have a question I was offered some options in stock that i had bought  and becomes valid Dec2008.
Am i able to sell these before then.
acooper


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## Mofra (7 July 2007)

rapidex said:


> I'm getting confused as to whether Bull & Bear or Call & Put determines whether you are long or short (brain no function today).



Rapidex,

To simply the process further, just calculate your net delta position - regardless of the spread you are trying to create, that will show you if you are (net) long or short the market, and to what degree.

Naming positions can be complicated, especially when you start introducing ratios into the equation to tame the greeks somewhat or change your risk/reward profiles. Sometimes it is better to simply crunch the numbers, & leaving the elaborate names to full timers who don't have to double-check what the more exotic spread descriptions actually mean (no disrepect, it's just that the descriptions are not second nature to people like myself, even though I've been trading for a number of years).

Cheers


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## Mofra (7 July 2007)

acooper said:


> I have a question I was offered some options in stock that i had bought  and becomes valid Dec2008.
> Am i able to sell these before then.
> acooper



acooper,

These will be company issued options, a little different than the Exchange Traded Options (ETOs) most would focus on here.
Often they are tradeable, with "O" added to the end of the stock code. The company announcement should be comprehensive enough to provide all relevent details, including when they are tradeable.

Cheers


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