Buy To Close

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DEFINITION of 'Buy To Close'

The closing of a short position in option transactions. Buying to close involves taking an opposing position from the short position which is no longer desirable, in order to synthetically close out exposure to the position. The new long position's performance should net out with the short position's. It's a strategy used by many brokerages.

BREAKING DOWN 'Buy To Close'

Investors can buy to close either puts or calls, or a combination of the two, and thus will be relinquishing obligations associated with the option(s). The distinguishing factor of a buy to close is that the option position must have been held short in the account during the transaction. This is a common practice as it is not uncommon for option positions to be closed prior to maturity.

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RELATED FAQS
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