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What is buy to open and buy to close?

post #1 of 16
Thread Starter 
I was looking into buying some options for INTC (intel), just 100 to get my feet wet.

When i went to my broker, i had the option to "buy to open" or "buy to close"

I went to investopedia.com for a definition, but it still not clear for me, can someone please tell me what the difference is between the 2?

Thank you.
post #2 of 16
To buy an option contract you buy to open.
To sell a contract you own, sell to close.

When you want to sell a naked put or short a call, sell to open.
Then to close that, you buy to close.
post #3 of 16
Thread Starter 
Thanks for the clarificaiton, it would suck if i buy 100 contracts lol.

Ok now I know there are 2 things u can do with an option. Either resell the option or exercise it (buy the 100 shares at the strike price) and then sell the stock.

so how would i go about to do either one i would be interested in doing?

And what happens when u buy to close instead?

Sorry.... i love information hehe.
post #4 of 16
Majority of option traders will sell the option before expiration. So buy it today at $1.50 ( remember, you see $1.50 as the quote, but you pay $150), if it goes to $2, you sell ($200) so you made $50 profit.

I strongly suggest you read the material here before you proceed any further and get yourself into trouble.

http://www.cboe.com/LearnCenter/Tutorials.aspx
post #5 of 16
Thread Starter 
ahhh just what i was looking for a tutorial lol.

thanks a lot bud.

You see I understand you can buy and sell an option, but you also have the bility to buy an option, exercise it at the strike price and sell it at the price it's at.

I want to make a decision based on whatever offers more profit (minus commissions)

I'll read this tutorial ASAP as well as the one on investopedia.

Thanks again.
post #6 of 16
Read and learn grasshopper.

Options are one of safest trading vehicles if you know how to use them properly. Most new traders fear them because you can lose everything real fast if you dont know what you are doing and are not aware of concepts like time decay.

Some of the most profitable trading I have done in equities and options has come from naked puts, but Ill leave that to you to find out more about that stuff.
post #7 of 16
I'm looking into options, like you said really safe if you know how to use them. doing my DD
post #8 of 16
Thread Starter 
From my understanding you can lose a lot of money in puts can't you?

if the stock goes up and the person decided to buy the share, you have to pay them at the current price?

I haven't had a chance to read anything yet, my car exploded and I have to attend to that first.
post #9 of 16
flix - you can get hurt selling naked puts if the stock price tanks below the strike price of the option sold.

I very much like to sell naked puts as well. more info here:
http://www.hotstockmarket.com/forums...ad.php?t=25932
post #10 of 16

B.H.

 

Dear Market Savvy

 

I feel like a real baby asking for mashed potatoes.

I would like to buy the equivalent of $ 1,000.00 in SLV options

Would you please help me, (no blames, no strings attached), to take the first steps?

 

Thanks

BB

post #11 of 16
Quote:
Originally Posted by Baby Boomer View Post

B.H.

 

Dear Market Savvy

 

I feel like a real baby asking for mashed potatoes.

I would like to buy the equivalent of $ 1,000.00 in SLV options

Would you please help me, (no blames, no strings attached), to take the first steps?

 

Thanks

BB



 

What month?

post #12 of 16


 

Quote:
Originally Posted by flixxx View Post

ahhh just what i was looking for a tutorial lol.

thanks a lot bud.

You see I understand you can buy and sell an option, but you also have the bility to buy an option, exercise it at the strike price and sell it at the price it's at.

I want to make a decision based on whatever offers more profit (minus commissions)

I'll read this tutorial ASAP as well as the one on investopedia.

Thanks again.


It is almost always more profitable to sell the contract instead of exercising it. Contracts hold extrinsic value, which is the combination of implied volatility and time remaining that is actually factored into the price making it more expensive. If you exercise a contract before the expiration date, you would be losing all the extrinsic value that it was holding. Quick example:

 

ABC is at $25

You have $22 strike call contract valued at $3.50.

If you exercise, you get 100 shares of ABC at $22, it costs you $2200 but they're worth $2500 on the market. So $300 profit.

If you just sold the contract, you would be getting $3.50 per share because you get to sell the extrinsic value as well. $350 profit.

 

The main exception is say you hold SPY calls that are about to expire. You want to continue being long anyway, so for commission reasons it make more sense to exercise the contract and keep the shares, instead of selling the contract and then rebuying shares right there after. Wouldn't make sense.

post #13 of 16
Quote:
Originally Posted by SemperOorah View Post


 



It is almost always more profitable to sell the contract instead of exercising it. Contracts hold extrinsic value, which is the combination of implied volatility and time remaining that is actually factored into the price making it more expensive. If you exercise a contract before the expiration date, you would be losing all the extrinsic value that it was holding. Quick example:

 

Great answer thumbup.gif

But I just want to point out that flixxx made that post 6yrs ago. wink.gif

post #14 of 16
Quote:
Originally Posted by StockJock-e View Post

 

Great answer thumbup.gif

But I just want to point out that flixxx made that post 6yrs ago. wink.gif



 

LOL. I was trying to figure out how I missed this thread because I try to check for new people posting here and I try to help with my limited knowledge. 6 years ago. laughing.gif

post #15 of 16
Quote:
Originally Posted by StockJock-e View Post


Great answer thumbup.gif
But I just want to point out that flixxx made that post 6yrs ago. wink.gif

maybe he was still waiting ??? doh! *face palm*
post #16 of 16

LOL epic fail rotfl.gif. I saw Baby Boomer post a few hours ago and didn't bother to check the rest of the thread.

 

 

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