Here’s our Club Mailbag email [email protected] — so you send your questions directly to Jim Cramer and his team of analysts. We can’t offer personal investing advice. We will only consider more general questions about the investment process or stocks in the portfolio or related industries. This week’s question: Can you go into “buy to open,” “buy to close,” sell to open,” and “sell to close” for options trades? — Dave M. Great question and follow-up to our introduction to options . For starters, “open” is used to initiate a position. You are opening a position. “Close” is used to exit an existing position. You are closing out the trade. “Buying” an options contract means you have the right but not the obligation to take action. “Selling” the contract means to take the short side of the trade. Buy to open: Let’s assume I want to get some exposure to Apple via the options market. If I believe the price of Apple will go up, I would buy to open a call option. This means I pay for the right, but not the obligation, to call on Apple shares — from the call option seller — should they appreciate. If I believe the price of Apple will fall, I would buy to open a put option, which means I pay for the right, but not the obligation, to sell Apple shares — to the put option seller — should they decline in value. Sell to close: Now let’s say I’m ready to book profits on that Apple bet. I don’t have to take delivery of the shares or wait til the contract expires. I can always sell the contract for cash by closing out the position. I would sell to close that contract. If I sell to close a call option, it means I’m booking a profit on Apple stock after it has gone up. If I sell to close a put option, I’m booking a profit on Apple shares after they’ve declined. Sell to open: Selling a call or put option is all about making money upfront with the hope that the contract will expire worthless (it doesn’t hit its strike price). If I sell to open a call…
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