Finschool By 5paisa

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Brokers will use the term “buying to open” to describe the formation of a new (opening) long call or put position in options. If a new options investor wants to buy a call or put, they should buy to open. When a trader places an order to buy, it tells other market players that they should expect them to take a new position rather than close out their old one. A sell-to-close order is used to close out a position that was opened using a buy-to-open order.

Sell-to-open is the process of opening a fresh short position; a buy-to-close order would be used to close it out. If a novice options trader wants to sell a call or a put, they should do so at the opening price.

The language used in purchasing and selling options is more complex than it is in stock trading. In addition to placing a straightforward buy or sell order, as they would for stocks, options traders must also choose between “buy to open,” “buy to close,” “sell to open,” and “sell to close.”

A buy-to-open position could give the impression to other traders that the trader making the order has biases against the market or is trying to establish something. This is particularly valid if the order is sizable. However, it is not need to be that way. A buy to open may actually offset an existing position since options traders commonly spread or hedge their bets.

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