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Net exposure

Long position value minus short position value, expressing your directional bet on the market as a whole.

Net exposure = longs - shorts, usually stated as a percentage of equity. $60,000 long and $40,000 short on a $50,000 account is +40% net: you are modestly long.

Net is the number that tracks with the index. A +40% net book roughly captures 40% of a market move, before differences in beta between the longs and shorts - which is why serious desks use beta-weighted-delta rather than raw dollar net.

A low net is not a low risk. Net exposure can be near zero while gross-exposure and single-name risk are enormous, and paired trades unwind violently when a merger breaks or a sector rotates. Zero net protects you from direction, not from being wrong about relative value.

Related: gross-exposure, beta-weighted-delta, long-short-ratio, hedge

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

How a call option's delta changes with the underlying priceAn S-shaped curve rising from zero, passing through about a half at the strike, and flattening near one.Delta of a call option1.000.5008090110120Out of the moneyAt the moneyIn the money1.00 means it moves one-for-one with the stockdelta ≈ 0.50 at the strikeStrike 100Underlying price
Delta across the range of prices. Delta says how much a call's price moves for a one-point move in the stock. Far below the strike it is near 0 and the option barely reacts; at the strike it is about 0.50; far above it approaches 1 and tracks the stock.

Educational only, not advice. Spotted an error? Post in Site Feedback.