Long position

To be long is to have bought and not yet closed. The workbook's definition is exactly that: an outstanding / unsettled buy position in a contract is called a long position. If Mr. X buys 5 Sensex futures contracts, he is long 5 contracts of Sensex futures.

The word describes a direction, not ownership. The workbook is careful to say that "buy" and "sell" in futures are figurative only, because no money or underlying asset changes hands between buyer and seller when the deal is originated. What the long futures holder has is a commitment to buy at the agreed price, and a position that gains when prices rise.

In options the same word attaches to the buyer or holder: the party taking a long position pays the premium and gets the right, without the obligation. A long put is still "long" — it is a bought option — even though it profits when the market falls.

Opening and closing. Opening a position means buying or selling a contract so that the client's open position increases. A long futures position is closed by selling the same contract. In options the workbook names the two transactions: an opening purchase creates or increases a long position, and a closing sale reduces or eliminates it. A long call is not closed by buying a put; the closing trade must carry the same contract specifications — same strike price and same expiry date.

Payoff. A long futures position has a linear payoff with unlimited profit and loss potential. Long futures at Rs 100: at Rs 150 on expiry the payoff is +Rs 50; at Rs 70 it is −Rs 30. A long option has limited risk (the premium paid) and unlimited profit potential.

Margin. A long futures holder pays initial margin and daily mark-to-market, because he has an obligation. An option buyer pays no margin — he has already paid the premium and poses no further risk.

In clearing. Proprietary positions are netted (buy − sell) for each contract, but client positions are not netted against each other: a trading member's open position is the sum of his proprietary open position, client open long position and client open short position.

At expiry of a stock futures contract, an open long position results in a buy (security receivable) position — it is settled by physical delivery.

The workbook's long hedge, worked through (Chapter 5, section 5.1). You plan to buy 1,500 shares of ABC Ltd on 20 June but will have the money only then. On 10 May the June futures trade at Rs 457.30, lot size 1,500. You go long one lot.

Scenario 1 — the share rises to Rs 520. You square off the futures at Rs 521.20.

Gain on long futures = (521.20 − 457.30) × 1,500 = 63.90 × 1,500 = Rs 95,850
Cost in cash market  = 520 × 1,500               = Rs 7,80,000
Net cost             = 7,80,000 − 95,850         = Rs 6,84,150  → Rs 456.10 per share

Scenario 2 — the share falls to Rs 390. You square off the futures at Rs 391.10.

Loss on long futures = (457.30 − 391.10) × 1,500 = 66.20 × 1,500 = Rs 99,300
Cost in cash market  = 390 × 1,500               = Rs 5,85,000
Net cost             = 5,85,000 + 99,300         = Rs 6,84,300  → Rs 456.20 per share

Either way the long position locks in a price close to the Rs 457.30 at which it was opened.

Counting positions (illustrative). Mr. X buys 5 lots of Nifty futures on Monday — long 5. On Tuesday he sells 2 lots of the same expiry — long 3. On Wednesday he sells 3 more — his open position is nil. Selling a different expiry instead would have left him long one contract and short another, which is a calendar spread, not a closed position.

Chapter 3, section 3.2, introduces "long" for the futures buyer, and section 3.4 defines long position, short position and open position with the Sensex and Nifty examples. Chapter 4, sections 4.1 and 4.5, apply the term to option buyers and their payoffs; Chapter 5 uses long futures for the long hedge; Chapter 7, sections 7.2 and 7.4, use long positions to compute a clearing member's open position and the physical settlement obligation at expiry. Expect questions that ask what closes a position, who pays margin, and what an open long stock futures position becomes on expiry.

• "Long" is not ownership. No money or underlying changes hands when a long futures position is originated; only margin is placed.
• A long put profits from a fall. It is long because the option was bought. Its delta is negative.
• A long call is closed by selling that call — same strike, same expiry — not by buying a put.
• An option buyer pays no margin; a futures buyer does. Both are "long".
• Client positions are not netted against each other in computing a trading member's open position; proprietary positions are netted per contract.
• An open long position in stock futures on expiry becomes a delivery obligation to receive shares and pay, not a cash difference.