I’ve read a few option books.
THANKS... This is probably the most comprehensive "greeks" article/book I’ve read.

Wonderful blog. …..
A wonder wealth of knowledge there. Thanks so much for your kindness in publishing it!

Thank you very much for the most concise and simplest option intro. Highly recommended.

So far, yours is the best blog/site on basic options notes in the web that I have chanced upon.

Tuesday, September 23, 2008

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

2 comments:

Red Eyes said...

Nice blog and I would like to stop by again. Just wondering what the lehman brothers bang really means? Is it really a shift in paradigm and the beginning of something new??

PW said...

Man I wish you were around 3 years ago when I first started trading. It took me flip'n forever to learn this. Even on my brokerage site back then there wasn't a clear explanation like yours.