Articles on Stock markets

When an investor takes a short position on an option contract by selling (“writing”) a call or put option, he or she is opening a position, which creates more open interest in an underlying security which will be handled by the brokerage house, and this is called “selling to open.”

If the price changes in the underlying security in an unfavorable way, the investor will seek to get out of the short position he holds on the options contract before the option’s expiration date. To do so, the investor must buy back the option (or, really, cancel out the position by buying the same kind of contract that he or she previously sold short).

Canceling out the open position is called “closing” the position, and is basically the same as covering a short. In this instance, the investor sold to open and bought to close, but at other times an investor might buy to open and sell to close.

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