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. Call

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

    1. The sale of a borrowed security, commodity or currency with ...
  3. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  4. Buy To Close

    The closing of a short position in option transactions. Buying ...
  5. Sell To Open

    A phrase used by many brokerages to represent the opening of ...
  6. Sell To Close

    In options trading, an order to sell an option that you own and ...
RELATED FAQS
  1. 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 Full Answer >>
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

    Give Yourself More Options With Real Estate Options

    Real estate options have many benefits, including a smaller initial capital requirement.
  4. Options & Futures

    The Fancy Way To Diversify Your Portfolio: Precious Metal Options

    A guide with strategies on how to invest or trade in precious metals by using options.
  5. Options & Futures

    When And How To Take Profits On Options

    Here are the different criteria to ensure maximum profit taking while trading options.
  6. Options & Futures

    The Future Is Now: All About Futures ETFs

    A new security class - futures ETFs - is gaining popularity. We tell you how futures ETFs work and offer tips.
  7. Options & Futures

    How To Protect A Short Position With Options

    Short selling can be a risky endeavor, but the inherent risk of a short position can be mitigated significantly through the use of options.
  8. Options & Futures

    Sensitivity Analysis For Black-Scholes Pricing Model

    Trading options requires complex calculations, based on multiple parameters. Which factors impact option prices the most?
  9. Options & Futures

    How To Make Money WIth Real Estate Options

    Buying real estate options is one way to invest in real estate at a lower entry cost.
  10. Investing

    Understanding the Black-Scholes Model

    The Black-Scholes model is a mathematical model of a financial market. From it, the Black-Scholes formula was derived. The introduction of the formula in 1973 by three economists led to rapid ...

You May Also Like

Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  3. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  4. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  5. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  6. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
Trading Center