Buy To Open

AAA

DEFINITION of 'Buy To Open'

A term used by many brokerages to represent the opening of a long call or put position in option transactions. A "buy to open" order has a distinguishing characteristic where the option position is not held short in the account during the transaction. The "sell to close" order is used to exit a position taken with a "buy to open" order.

INVESTOPEDIA EXPLAINS 'Buy To Open'

The buy and sell terminology for options trading is not as straightforward as it is for stock trading. Instead of simply placing a "buy" or "sell" order as they would for stocks, options traders must choose among "buy to open," "buy to close," "sell to open," and "sell to close." Beginning options traders should ensure that they understand the terminology and that they place their orders carefully to avoid preventable mistakes.



RELATED TERMS
  1. Buy

    1. A recommendation to purchase a specific security. A buy rating ...
  2. Buy To Close

    The closing of a short position in option transactions. Buying ...
  3. Sell To Close

    In options trading, an order to sell an option that you own and ...
  4. Sell To Open

    A phrase used by many brokerages to represent the opening of ...
  5. Short (or Short Position)

    1. The sale of a borrowed security, commodity or currency with ...
  6. Call

    1. The period of time between the opening and closing of some ...
Related Articles
  1. Options Basics Tutorial
    Options & Futures

    Options Basics Tutorial

  2. Prices Plunging? Buy A Put!
    Options & Futures

    Prices Plunging? Buy A Put!

  3. What do the phrases
    Options & Futures

    What do the phrases "sell to open", ...

  4. Stock Safety: Top 3 Ways to Limit Your ...
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your ...

Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  3. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  4. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  5. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center