Options Transactions

In stock trading, there are only 2 types of transactions: To buy or to sell.

In option trading, there are 4 different types of Option Transactions:
1) Buy To Open
2) Buy To Close
3) Sell To Open
4) Sell To Close.

The type of transaction that an option trader will make depends on whether he/she is an Option Buyer or Option Seller/Writer.

For an Option Buyer, the following are the types of transaction he/she will make:

1) Buy To Open
When an Option Buyer wants to open / enter a �long� position on a certain option contract, he will need to do a �Buy To Open� transaction.
For example: When an option trader wants to buy a straight Call option to take advantage of current upward trend.

2) Sell To Close
When an Option Buyer wants to close the �long� position he entered previously, he will need to do a �Sell To Close� transaction.
For example: When the option trader wants to sell the Call option he/she owned / bought earlier.

For an Option Seller/Writer, the following are the types of transaction he/she will make:

1) Sell To Open
When an Option Seller/Writer wants to open / enter a �short� position on a certain option contract, he will need to do a �Sell To Open� transaction.
For example: When an option trader wants to sell a Call option to earn premiums.

2) Buy To Close
When an Option Buyer wants to close the �short� position he entered previously, he will need to do a �Buy To Close� transaction.
For example: When the option trader wants to buy back the Call option he sold earlier.

Related Posts:
* Getting Started Trading
* Options Trading Basic � Part 1
* Options Trading Basic � Part 2
* Understanding Implied Volatility (IV)
* Option Greeks
* Trading Educational Videos