What is the buy to close order? How do I close a short options position?
Buy To Close (BTC) - Introduction
No other publicly traded financial instruments in the world has more types of trading orders than options. The variety of trading orders that
options trading has is one of the first things that astonished options trading beginners and also one of the first mistakes options traders
Indeed, using the wrong orders would no doubt result in unnecessary losses and frustration, which makes understanding how they work extremely
important. There are four main trading orders that options traders use and they are; Buy To Open, Buy To Close, Sell To Close and Sell To Open.
This tutorial will explain in detail what "Buy To Close" is.
When To Use Buy To Close?
Buy To Close
, also known as BTC, is to be used when buying back options
that you are currently short, no matter call or put options
. Yes, you Buy To Close short call options and Buy To Close short put options as well.
If you shorted call options or put options using a Sell To Open
order, you would close them using the Buy To Close order.
To be more technical, Buy To Close (BTC) is used to close or trade out of a short
The picture below explains the orders matching in options trading. As you can see, Buy To Close (BTC) orders are used in closing positions established using the
Sell To Open
The Buy To Close (BTC) order can be used to close open short positions at anytime before the options contract expires
Remember, always use the Buy To Close order when closing your naked put or call write position
What Does Buy To Close Mean?
Buy To Close (BTC) means "Closing a position by buying". This is exactly the same thing as covering your short stocks. Closing a position is to trade out of an
existing position. By closing a position, the position would no longer exist in your account and the resultant profit or loss would be realized.
There are two main ways to close an options position; Selling a long position or Buying a short position. Buy To Close is used for buying back a
When you Buy To Close (BTC) an options contract
, you are actually buying back the options contracts that you previously created and sold from a
in order to realize a profit or loss. To get an immediately fill, you should
use the Buy To Close order at the option's ASK price
Buy To Close Call Options and Put Options
You Would Buy To Close (BTC) call options and put options when you wish to take profit or stop loss on those options contracts that you previously wrote. Writing options
term for shorting an option.
In fact, this is the exact order you will use when closing a
Naked Call Write
Naked Put Write
options strategy. Buy To Close call options relinquishes
your obligation under the contract and you will no longer benefit from further decay of their
Buy To Close Example :
John wants to close the Jan40Call position that he previously wrote on the QQQQ in order to take profit. He will Buy To Close (BTC) the Jan40Calls.
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