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. Sell To Open

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

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

    1. The period of time between the opening and closing of some ...
  4. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  5. Option

    A financial derivative that represents a contract sold by one ...
  6. Put

    An option contract giving the owner the right, but not the obligation, ...
Related Articles
  1. Options & Futures

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
  2. Options & Futures

    Prices Plunging? Buy A Put!

    You can make money on a falling stock. Find out how going long on a put can lead to profits.
  3. Options & Futures

    What do the phrases "sell to open", "buy to close", "buy to open", and "sell to close" mean?

    The confusing terminology mentioned in the question deals with entering and exiting option orders. In review, there are two main ways in which you can participate in options, you can either buy ...
  4. Options & Futures

    What are the most common momentum oscillators used in options trading?

    Read about some of the most common technical momentum oscillators that options traders use, and learn why momentum is a critical concept for options trading.
  5. Options & Futures

    How are Bollinger Bands® used in options trading?

    Use Bollinger Bands to identify volatility changes and place options trades at the right time; profit in bull or bear markets using these strategies.
  6. Options & Futures

    Stock Futures vs Stock Options

    A full analysis of when is it better to trade stock futures vs when is it better to trade options on a particular stock. A quick overview of how each of them works and why would a trader, investor, ...
  7. First time stock investors may ask, is there any way to buy insurance on stocks to prevent losses?
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your Losses

    First time stock investors may ask, is there any way to buy insurance on stocks to prevent losses?
  8. Options & Futures

    Applying Binary Options To Equity Markets

    A binary option payout depends on the outcome of a “yes” or “no” proposition, related to the difference between underlying asset price and strike price.
  9. Investors can use derivative securities to effectively buy insurance on their individual holdings or on their portfolio as a whole.
    Options & Futures

    Can You Buy Stock Insurace? 3 Strategies to Limit Stock Losses

    Investors can use derivative securities to effectively buy insurance on their individual holdings or on their portfolio as a whole.
  10. With more ETFs to trade, the risks associated with these investments have grown. To mitigate these risks, ETF options are a hedging strategy for traders.
    Mutual Funds & ETFs

    ETF Options Hedge Risk of ETF Trades

    With more ETFs to trade, the risks associated with these investments have grown. To mitigate these risks, ETF options are a hedging strategy for traders.

You May Also Like

Hot Definitions
  1. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  2. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  3. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  4. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  5. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  6. Law Of Supply And Demand

    A theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply ...
Trading Center