Buy To Close

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 make.

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 position.

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 order.

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 short position.

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 market maker 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 is options trading term for shorting an option. In fact, this is the exact order you will use when closing a Naked Call Write or 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 extrinsic value.

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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