Both the buyer and seller, in an option trade, establish the position with an opening transaction. The buyer has an opening purchase and the seller has an opening sale. To exit the option position, an investor must “close out” the position. The buyer of the option may exit their position through:

  • A Closing Sale
  • Exercising The Option
  • Allowing The Option To Expire

The seller of an option may exit or close out their position through:

  • A Closing Purchase
  • Having The Option Exercised or Assigned To Them
  • Allowing The Option To Expire

Most individual investors do not exercise their options and will simply buy and sell options in much the same way as they would buy or sell other securities.

Need Help Passing Your Series 4 Exam?

Buying Calls

Related Articles
  1. Trading

    Getting Acquainted With Options Trading

    Learn more about stock options, including some basic terminology and the source of profits.
  2. Trading

    4 Reasons To Hold Onto An Option

    There are times when an investor shouldn't exercise an option. Find out when to hold and when to fold.
  3. Investing

    What are Options Contracts?

    An explanation of options contracts, call options and put options.
  4. Trading

    Options Pricing

    Options are valued in a variety of different ways. Learn about how options are priced with this tutorial.
Frequently Asked Questions
  1. What's the Best Way to Contact Warren Buffett?

    Learn how to contact Warren Buffett and what kinds of contact is most likely to receive a response from him or from his company, ...
  2. What is the Financial Services Sector?

    A diverse group of companies, beyond banks and credit unions, comprises the financial services sector.
  3. Who are Whole Foods' (WFM) main competitors?

    Whole Foods' main competitors are Sprouts Farmers Markets and Trader Joe's. However, the recent acquisition by Amazon my ...
  4. What caused the Stock Market Crash of 1929 that preceded the Great Depression?

    Find out what led to the stock market crash of 1929, which in turn led to the Great Depression. It sparked a nearly 90% loss ...
Trading Center