Beginning Traders

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Options Transactions

Unlike stock trading, the contractual nature of options offer four different ways for entering and exiting positions. There is an options seller (writer) and an options buyer (holder). The option seller can enter or exit a transaction, and so can an option buyer.

Opening Transactions

Buy-to-Open

This is the transaction the options buyer make to enter a long position on an option. For example, if you want to buy a call option, you would enter a "buy-to-open" transaction.

Sell-to-Open

This is the transaction the options seller make when he wish to enter a short position on an option. For example, if you are writing call options to earn premiums, you would enter a "sell-to-open" transaction.

Opening Transactions

Buy-to-Close

This is the transaction the options writer make when he wish to exit a short position on an option. For example, if you wish to buy back the calls you had previously sold, you would enter a "buy-to-close" transaction.

Sell-to-Close

This is the transaction the options holder make to exit a long position on an option. For example, if you want to sell a previously purchased call option, you would enter a "sell-to-close" transaction.

Next: Option Order Types

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