How to Close Options - Understanding Buy To Close / Sell to Close

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What Is Sell to Close?
Sell to close indicates that an options order is being placed to exit a trade. The trader already owns the options contract and by selling the contract will close the position.

Sell to close is employed to close a long position originally established with a buy to open order and can be compared with buy to close and sell to open orders. It is also used, but less often, in equity and fixed-income trading to indicate a sale that closes an existing long position.

What Is Buy To Close?
'Buy to close' refers to terminology that traders, primarily option traders, use to exit an existing short position. In market parlance, it is understood to mean that the trader wants to close out an existing option trade. Technically speaking, it means that the trader wants to buy an asset to offset, or close, a short position in that same asset.

Understanding Buy To Close
There is a nuanced difference between a 'buy to close' option and a buy to cover purchase. The former refers to mainly options, and sometimes futures, while the latter typically refers to stocks only. The end result is the same in both cases. Essentially, it is the buying back of an asset initially sold short. The net result is no exposure to the asset.

The term 'buy to close' is used when a trader is net short an option position and wants to exit that open position. In other words, they already have an open position, by way of writing an option, for which they have received a net credit, and now seek to close that position. Traders normally use a 'sell to open' order to establish this open short option position which the 'buy to close' order offsets.

In the case of stocks, selling assets short involves borrowing the asset from another entity. For futures and options, the process involves writing a contract to sell it to another buyer. In both cases, the trader hopes the price of the underlying stock moves lower to generate a profit at the trade's closing.

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#TradingOptions #SellToClose #BuyToClose
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DISCLAIMER:
This video is for entertainment purposes only. I am not a legal or financial expert or have any authority to give legal or financial advice. While all the information in this video is believed to be accurate at the time of its recording, realize this channel and its author makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in this video.

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[JakeBroe]

Give this video a LIKE to support my channel! Also check out my entire playlist on Trading Options here!

[matthewcrawley]

Don’t stop, Jake. You are a good one.

[RosieBaseball]

Buy to Open/Sell to Close - Always sell to close before expiration if you are a retail investor. Thank you so much for this answer that I was looking for at 3:30 - 4:33

[krylocskrazeplay]

You are the only you tuber I know that explains how the call/put options affect some one at expiration. Buy to open/Sell to Open, and what happens when it expires. I understood the co cents of Buying to Open and Selling to open vs Selling to Close and Buying to close, but your explanation helped me know which down arrow to choose and why I'm taking this action. Bravo!

[davekraft]

Jake is the best! He explains in very clear terms material which some find difficult. He’s my go-to options teacher. Thanks Jake!

[warnerartiste]

Thank you for explaining how to close options. There are so many videos on this subject, but found yours the simplest, and most detailed to understand, and apply.

[debbieshapiro]

Just getting started with options trading and have been unsure about closing out a contract, so this is super helpful! Thank you!

[kainatbaloch]

Made this concept easy to understand 👍

[infate-hl]

Wow just another question that I had, and Jake almost as he can read my mind, makes a video about it. You're the best man!

[davidsearle]

Hello Jake, lovely explanation of what goes on at expiration of an Option Contract. Thank you for being clear with such a difficult subject. I am starting out and trying to get clarity on the closing of options.
I assume the only options that will require manually closing will be only those which would expire profitable, thus avoiding a share allocation?

[Draylis]

Thank You for this I accidently hit Buy to open instead of Sell to open. I don't know how, but I actually made a few bucks Selling to close. Great content bud! You saved me!

[joleneself]

Love you!. It seems like I have watched 100 videos and still confused. I should have come here first!

[Ricardeatsflakes]

Thanks Jake I don’t normally comment on anything, but you warrant it, you’re a great teacher keep it up!

[ps]

its the best video that explains - sell to open, and buy to close.

[atlas]

Thank you. Needed confirmation and your explanation made it very simple

[kameshkannan]

Thank you Jake for this video. It was really helpful to understand, I follow all of your videos in Options trading and getting educated myself. Really nice one.

[wingzero]

again, super useful, made the options trading EVEN clearer.

[ika]

Very well explained Jake, thanks a lot. I'm a beginner and was actually looking at exactly this scenario ! I feel better equipped thanks a lot !

[TopRetroCommercials]

thanks you help me understand the buy to close. I was super confused why that was even an option. thanks

[SLIRAofficio]

So timely alot buddie, I lost all my asset just because I didn't have this information.