sell to open vs sell to close

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Option contracts are different than stock shares in the way they are created, traded, and closed.

There are two different types of selling in options trading: sell to open vs sell to close. 

An options trader will sell to open a new option contract that they want to be short. This is also called writing an option contract. This is the act of creating a new option contract that you sell to an option buyer to open the position in the options market. This option contract will become part of open interest on the options chain. The sell to open action applies to either a sell to open call or a sell to open put. The options trader is now short the strike price and amount of contracts of the call options or put options they sold to open and must either buy them back before expiration, have the stock called from their account or put on them at expiration for the strike price. The other option is that the short options can expire worthless and they keep the entire option premium they received. A covered call on an existing stock in created with a sell to open order of call options on the stock position that is owned in an account. 

In contrast, a sell to close order is when an option trader exits an existing option contract that they own by selling it into the option market. An option trader closes their option position when it is sold whether it is a call or a put before expiration. When a sell to close order is bought by an option trader that was short the option then the contract is closed and removed from open interest. Options are fungible and there is a short and long position on every option contract as each must have a writer and a buyer and later have a seller and buyer. When an option is written it is opened and when the short seller buys it back it is closed. 

An option is created with the sell to open order and it can be retired when a sell to close order meets a buy to close order or at expiration if allowed to play out until the end. 

sell to open vs sell to close
Mfolozi at the English-language Wikipedia, CC BY-SA 3.0 <http://creativecommons.org/licenses/by-sa/3.0/>, via Wikimedia Commons

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