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"Is Selling to Close an option different from writing the option?"



Question By Kartik

"Is Selling to Close an option different from writing the option?"

Hi. I purchased a put option contract for June. Now I want to close the sale. I wanted to know what the ramifications would be if I chose to 'sell the put option.' My concern is if I 'sell to close' the put option, can I be 'assigned?' I read that if one 'sells an option' they may be assigned if the option is exercised. Or do they actually mean if one 'writes an option,' only then can they be assigned. Basically my question is: Is 'selling to close' an option different than 'writing' a put option.

Asked on 18 March 2009

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Answered by Mr. OppiE

Hi Kartik,

Yes, sell to close is different from writing an option.

When you write an option, which is essentially to short an option by creating a new options contract and selling it to another investor through an exchange, you would have to use the SELL TO OPEN order as your opening order. A Sell To Open order is used to open a position by selling, which translates to writing an option. In this case, your position would be open for assignment anytime it is in the money.

However, When you bought those put options that you own right now, you used the BUY TO OPEN order, right? When you use a Buy To Open order, you are opening a position by buying an existing put option from the exchange, which means that you are not liable for assignment at all. In fact, you have the right to exercise the option if you want to as you are the holder of the put option, not the writer. In this case, when you close your put options position using the SELL TO CLOSE order, you are closing the position by selling the put options that you own back to the exchange and you will not be liable for assignment at all.


In conclusion, unless you are a writer of an option, you will not be subjected to assignment and to be a writer of an option, you would have to open a short position using the SELL TO OPEN order. In your case, feel free to sell your put options using the SELL TO CLOSE order as you will not be assigned and you would have simply realized whatever profit or loss that the position has incurred so far.




Response by Kartik...

Thank you. This was really appreciated and helped me understand the basics much more clearly. Thanks.


Reply by Mr. OppiE...

My pleasure. I hope you and your friends find Optiontradingpedia.com useful and also tell others about us.



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