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Sean M | Sell to Open vs Sell to Close? |
I have a Schwab brokerage account and I can trade options. Can I SELL TO CLOSE an option without having SOLD TO OPEN first? I know that is backwards but it looks as though I could do that Even if only by mistake. I want to make sure I'm not overlooking something.
Additional Details
I know it's confusing. Let me re-phrase What happens if you Sell to close an option trade if you never Sell to open. |
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raysor
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Good point made elsewhere-learn all the mechanics before you start trading. It can be expensive learning by your mistakes. Sell to open is writing an option (taking money and giving control away) Selling an option to close is closing an open option that you have bought. There are four basic opening option trades: Buy Call, Buy Put, Sell (write) Call, Sell (write) Put. The buys and sells are on opposite sides. For example you sell a call and I buy it. If you sell the call (or put) and I buy it you are giving me the right to exercise. You are giving away control. |
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Common Sense
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You should not be trading Options without understanding the basics.
Selling Options (naked) or otherwise is a common transaction. For example I'll sell a put (without owning the put or the underlying). If the underlying reaches the strike price (or less) the stock is "put" to me..... Otherwise I just keep the premium... I'll only do this with stocks I want. I do this in my IRA account regularly. I don't sell naked calls..... way to dangerous... the loss can be just like shorting a stock.
If you own an option... you would "Sell To Close"
If you don't have a position.... you might "Sell to open".
Needless to say.... if you don't understand the Greeks... you shouldn't attempt any of this.
Read:
https://www.redoption.com/options_basics_greeks.php
https://www.redoption.com/education_option_basics_m.php
These links only touch the subject of options. Expect to be learning this stuff for years before you can regularly be profitable. |
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James
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It really isn't as confusing as you think; You simply cannot SELL TO CLOSE a position you don't own. If you want to sell short a position, you need to SELL TO OPEN the option. If you are not convinced, try doing it in your broker account and see the error message that is presented after hitting the submit order button. |
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