What does 'Buy To Close' mean

Buy to close is 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.

RELATED TERMS
  1. Close Position

    Executing a security transaction that is the exact opposite of ...
  2. Buy To Open

    A term used by many brokerages to represent the opening of a ...
  3. Open Position

    In investing, any trade that has been established, or entered, ...
  4. Sell To Close

    In options trading, an order to sell an option that you own and ...
  5. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  6. Net Short

    A condition in which an investor has more short positions than ...
Related Articles
  1. Trading

    Synthetic Options Provide Real Advantages

    Participate in options trading trading that is simpler, less expensive and easier to manage.
  2. Trading

    How To Protect A Short Position With Options (FB, AAPL)

    Short selling can be a risky endeavor, but the inherent risk of a short position can be mitigated significantly through the use of options.
  3. Trading

    Trading Volatility? Don’t Trade Stocks, Trade Options

    During times of volatility, traders can benefit greatly from trading options rather than stocks. We explain why.
  4. Trading

    Put-Call Parity And Arbitrage Opportunity

    Look at trades that are profitable when the value of corresponding puts and calls diverge.
  5. Trading

    A Guide Of Option Trading Strategies For Beginners

    Options offer alternative strategies for investors to profit from trading underlying securities, provided the beginner understands the pros and cons.
  6. Trading

    The Difference Between a Long and Short Position

    Stocks are owned in a long position and owed in a short position.
  7. Financial Advisor

    Why You Should Never Short a Stock

    Short selling a stock means you are betting on the stock decreasing in price. Before taking on this investment, you should fully understand the risks
  8. Trading

    The 4 Advantages of Options

    Flexible and cost efficient, options are more popular than ever. Find out why.
  9. Trading

    Get Into Low-Cost Futures Trading With Synthetics

    If you can't trade commodity futures outright, these vehicles provide a less expensive alternative.
  10. Trading

    Difference Between Short Selling And Put Options

    Short selling and put options are used to speculate on a potential decline in a security or index or hedge downside risk in a portfolio or stock.
RELATED FAQS
  1. What's the difference between a long and short position in the market?

    Understand long and short positions for stocks and option contracts; combine long and short positions for added leverage ... Read Answer >>
  2. What do the phrases "sell to open", "buy to close", "buy to open", and "sell to close" ...

    The confusing terminology mentioned in the question deals with entering and exiting option orders. In review, there are two ... Read Answer >>
  3. When short selling, how long should you hold on to a short?

    Explore the reasons for short selling and the various factors that influence how long an investor may wish to maintain a ... Read Answer >>
  4. What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being ... Read Answer >>
  5. How do I close a long position in forex?

    Learn the different ways that traders close out existing long positions in the forex market, depending on whether their brokers ... Read Answer >>
  6. Is going long considered to be less risky than going short?

    Learn what the difference between going long and going short, why it is riskier to be short than long, and the risk associated ... Read Answer >>
Hot Definitions
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  3. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  4. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  5. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  6. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
Trading Center