Buy-to-close (BTC) orders pay a debit and close a position that was opened selling options. Sell-to-close (STC) orders receive a credit and close a position that was opened buying options. The premium paid or collected, relative to the opening order, determines your profit or loss on a trade.
Knowing which type of closing order to enter is just as important when trading options as opening orders. In this video I'll quickly cover Buy to Close (BTC) vs Sell to Close (STC). Buy to close orders are orders that reverse original trades where you took in a credit or premium from selling options. Sell to close orders are the most typical style of order because you are selling some underlying option that you already own for a credit, therefore closing out the trade.
In today’s video tutorial is real quick, but really important with regards to different types of options orders that you can put into the market to close a position that you have.
A lot of people get confused on this, and it’s actually simple, and we’re going to talk about buying to close versus sell to close.
Most people when they get into the world of options trading from stock trading, when you put in a sell order, that’s usually a sell order to close, you usually buy stock, and then you sell stock.
But with options, if you sold a position first, you might have to put in order to buy to close. I want to go over both of these today here with you guys in this quick short video tutorial.
Buy to close. What does this mean? This is when an option buyer wants to exit a short position on an option strategy or spread. For example: If you wanted to buy back a call option, you would choose to enter an order for buy to close the transaction.
On the sell to close side, this is where an option buyer wants to exit a long position on an option. Say you have a long put position or a long call position. You would sell to close and get out of that trade.
For example: If you want to close your long position, you will use sell to close this transaction. Again, simple, but very important to understand.
We get a lot of comments on our blog and on our membership side about buy to close versus sell to close, etcetera, so check out any of our other video tutorials also and thanks for watching so much.
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