Im trying to learn more about OPTIONS TRADING, I need help with some terms in DETAIL please.?

Question

Whoever gives me the most DETAIL will get the 10 points!

What do the following mean:
Buy to Open
Buy to Close
Sell to Open
Sell to Close

Im trying to buy calls, once I buy them how do I make money on them? How do I sell them exactly?
When buying calls is it true the most you can lose is the amount you invested?
Also, on the screen I see some stocks that say Calls [55] and other stocks that say Calls [45] at the top of the screen, its not the price so what does it mean?
When buying calls under quantity if I put 1 does that mean im buying 100 shares?

Answer 1

Just think of it like this - an opening transaction starts the position - long or short (a buy to open would be a long, a sell to open would be a short) and a closing transaction leaves you flat (buy to close = covering a short, sell to close = selling a long). They ask this because shorting options can be extremly risky, and may brokers will not let you sell call options short.
I don't know what quote software you're using, but the 45 and 55 sound like strike prices to me, you should look into that.
When you buy one call option contract, you're buying the RIGHT to buy 100 shares of the stock at the predetermined price, not the obligation, and not the actual shares, but I'm probably splitting hairs here - yes, one contract is equivilant to 100 shares.

Options are bot and sold just like stock, you make money with them the same way you would trading stock - buy low and sell high (or visa versa). One important distinction, long positions in options are intrinsically 'wasting assets' - they will lose value over time.

These are more tricky and risky than plain equities, and it sounds like you need to do a little more research into them before you get started - don't start before you understand them completly. I'm sure google would produce numerous sites that explain them and the different stratagies employed by options traders (spreads, straddles, covered calls etc.)

Good luck to you!

Answer 2

What do the following mean:
Buy to Open: Buying an option (call or put) creating a position
Buy to Close: Buying an option (call or put) to close a position
Sell to Open: Selling an option (call or put) creating a position
Sell to Close: Selling an option (call or put) to close a position

Im trying to buy calls, once I buy them how do I make money on them? How do I sell them exactly? When you buy calls you want the price of the underlying (stock) to go up and then your option will go up in value, that is when you will Sell to Close, on an options exchange and then you will be credited in your account the value of the option you purchased.

When buying calls is it true the most you can lose is the amount you invested? Yes
Also, on the screen I see some stocks that say Calls [55] and other stocks that say Calls [45] at the top of the screen, its not the price so what does it mean? These are probably strike prices of the underlying (stock). If a stock is trading at $50/share it may very well have a 45 Strike for puts and calls and a 55 Strike for puts and calls. A strike price is a price that is either in the money, at the money, or out of the money. For instance, if a stock is at $50 per share and you are looking at calls a $55 strike is out of the money, meaning it has no intrinsic value, only time value. A $45 strike is in the money, meaning it has intrinsic value ($5 per share) and will probably cost more than the $55 strike because it has an actual value. At the money would be a $50 Strike.
When buying calls under quantity if I put 1 does that mean im buying 100 shares? When you buy an option you are buying the right to buy, you are not actually buying the shares. The right is all you are buying. Most options are never exercised and therefore are traded off at a higher or lower price before the expiration date.
You should really try reading the information from the Chicago Board of Options Exchange web site and that will explain things in laymens terms. Hope this information helps.

Answer 3

You want to use "buy to open"... Buy to Close would be used if you were a seller of an option, ie you own 100 XYZ and sell a call for cash...then you want to cover your position =, so you would be buying to cover, ie closing an open position. For sell exactly the reverse, you will be selling to close.

Options are quoted just like stocks, so if the price goes up you could sell.

When buying calls you cannot lose more than the price paid and commissions.

most options tables have many different months and "strikes" this is the price were the option comes into the money. A $50 stock might have calls from 35 to 75 or even broader sometimes
etc. that is probably what you are seeing. And finally yes 1 is 1 contract for 100 shares

Answer 4

Buy to open: This is ticket order information telling the broker to buy in your case an opening position in call options. The order will look like this, Buy to open 1 November 55 call at the market. Opening position indicates you would like to start a new position with this order.

Sell to Close: Order to sell you existing call position. The order will look like this, Sell 1 November 55 call at the market. This will close your present position. You are now flat or without a position.

Sell to open: Order to sell exactly like shorting stock. Order Sell 1 November 55 call at the market. You will now be short 1 November 55 call. This is a dangerous naked short but is very common as a covered call position.

Buy to Close: You cover your short call. Order buy 1 November 55 call at the market.

I stayed with call options due to the fact all you questions referred to call options. It’s your responsibility to know all your position you can have a Buy to open 1 November 55 call option and a Sell to open 1 November 55 call option. Although in your mind you are flat with no position it will cost you additional commission fees, margin fees, and free cash in your account.

The above terms are orders that are how you buy the options. The (Buy1 November 55 call at the market) opening position. Says buy 1 call with a November expiration (expirations can be any month DEC, Jan, etc.) 55 is the strike at the market is the price. So in this example the underlying equity must be greater than 55 the strike price before November expiration by an amount greater than what you paid for the option plus fees.

Yes, you have a limited loss if you BUY a call on a buy to open order ONLY. But if you Sell to open you have unlimited loss on a naked position.

In your example the 55 and 45 are strike prices. This number says you are willing to buy the equity at that specific price. If you agree to pay $55 per share to make $$ the stock must rise above 55 before expiration. (55+ what you paid for the option+commission fees+ financing if any) = break even.

1 contract usually equals 100 shares of stock. There are exceptions if there is a merger, acquisition or special situation. Nine out of 10 times 1 contract = 100 shares.

Be careful it sounds like you don’t understand volatility or the Greeks. Good luck sorry for the typos I’m in a hurry.

Answer 5

This is the best answer you are going to get, OK ! If you are trading, real money, and still do not know the answers to the questions you ask, you are going to get your *** busted !
Might as well find a toilet to flush your money down.

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Answer 6

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Answer 7

Dude www.bullbythehorns.com. You will need a lot of work before you buy this sight can help. www.tradingmarkets.com also has good information.

Answer 8

www.investopedia.com