Sell to Open vs Sell to Close in the Stock Market: A Beginner’s Guide

You’ve probably come across the terms “Sell to Open” and “Sell to Close”, scratching your head in confusion. It’s all Greek to you, right? Well, don’t sweat it, folks! We’re here to help break it down for you. Hold your horses as we dive into these terms, transforming you from a trading novice to a trading pro!

Taking the First Leap: What does ‘Sell to Open’ Mean?

Ever think about starting something new? Like a new adventure or a new book? In trading lingo, “Sell to Open” is kind of like starting that new chapter. It’s a term we use when we want to kickstart a trade.

Think of it like this – you’ve got a hot new toy that everyone wants to get their hands on, but you don’t actually own it yet. You promise your friend to sell it to them once you get it. This is similar to “Sell to Open”. You’re selling a promise that you’ll give a stock to someone in the future, even though you don’t own the stock yet.

Drawing the Curtains: What does ‘Sell to Close’ Mean?

Now, let’s flip the script. You’ve started your adventure, and now you’re ready to end it. Just like the last page of a book, “Sell to Close” is about wrapping up a trade.

Remember the hot new toy you promised to sell? Let’s say you finally got it and you’re ready to hand it over. This is what “Sell to Close” is all about. You’re closing the deal and giving the stock you promised to the other person.

Sell to Open vs Sell to Close: A Trading Scenario

To make things easier, let’s imagine a scenario:

  1. Bob wants to start a trade, so he uses “Sell to Open” to sell a promise to sell a stock to Alice in the future.
  2. Alice agrees and buys this promise.
  3. Later, Bob acquires the stock and uses “Sell to Close” to fulfill his promise and hand over the stock to Alice.

Simple as pie, right?

Why Is This Important for Traders?

Knowing the difference between “Sell to Open” and “Sell to Close” can make you a sharper, smarter trader. It’s like knowing your left from your right. If you use the wrong term, you might end up in a place you didn’t want to be, like selling a stock you didn’t mean to!

The Roller Coaster of Options Trading

Think of options trading like a roller coaster. It’s full of ups and downs, twists and turns, and the occasional loop-de-loop. The adrenaline rush is real! And just like how you need to know when to raise your hands and when to hold on tight, in options trading, you need to know when to ‘Sell to Open’ and when to ‘Sell to Close’.

Delving Deeper into ‘Sell to Open’

Let’s bring back our friend, Bob. Now, Bob believes that the price of a particular stock, let’s call it XYZ, is going to go down. It’s currently at $10 a share, and he thinks it’s going to drop to $7. Bob decides to ‘Sell to Open’ an option contract for 100 shares of XYZ.

Remember, when Bob ‘Sells to Open’, he’s selling a promise to give the stock to someone else in the future. So, Bob sells this contract for a premium of $2 per share, making $200 (100 shares x $2). This $200 goes straight into Bob’s pocket.

Understanding ‘Sell to Close’ with Numbers

Fast forward a couple of weeks, and Bob’s prediction was spot-on. The price of XYZ fell to $7 per share. Bob decides to ‘Sell to Close’ his contract.

He buys 100 shares of XYZ for $7 per share, costing him $700. Bob then sells these shares to fulfill his promise. But remember, Bob has already made $200 from the premium when he ‘Sold to Open’.

So, the total cost for Bob is actually $500 ($700 for buying the stocks – $200 premium he earned). Bob has successfully closed his trade and earned a profit.

A Quick Look at the Numbers

Let’s visualize this with a table:

Trade Action Stock Price Cost/Premium Total Cost
Sell to Open $10/share +$200 +$200
Buy to Close $7/share -$700 -$500

*Please note that this table doesn’t include commission fees or other charges that may apply.

A Word of Caution: just like riding a roller coaster, options trading isn’t for everyone. It’s important to understand the risks and rewards. In the example above, Bob made a profit. But if the stock price didn’t go down, Bob could’ve lost money. So always do your homework and tread carefully!


Trading can be complex and might seem like learning a new language. But once you get the hang of it, terms like ‘Sell to Open’ and ‘Sell to Close’ become second nature. So remember, start the trade with ‘Sell to Open’, end it with ‘Sell to Close’, and keep your wits about you. Now, go forth and conquer the world of trading!

Frequently Asked Questions (FAQs)

What is sell to open vs sell to close?
‘Sell to Open’ and ‘Sell to Close’ are phrases used in options trading. ‘Sell to Open’ initiates a trade by selling an option, creating an obligation to fulfill the terms of the contract if the holder wishes. On the other hand, ‘Sell to Close’ is used to end an existing position, thus releasing the obligation.

What does it mean to sell to open?
‘Sell to Open’ is like starting a new chapter in options trading. It means initiating a trade by selling a call or put option. When you ‘Sell to Open’, you’re selling a promise that you’ll give a stock to someone in the future, even though you don’t own the stock yet.

What does it mean to sell to close?
‘Sell to Close’ is the equivalent of ending a trade. If you have an existing position from a ‘Sell to Open’ order, you can close that position by buying back the option you sold, referred to as ‘Sell to Close’. In other words, you’re closing the deal and giving the stock you promised to the other person.

Is sell to open bullish or bearish?
‘Sell to Open’ can be either bullish or bearish depending on whether it’s a call or put option. Selling a call option (bearish) indicates you believe the price of the stock will stay below the strike price. Selling a put option (bullish) implies that you think the price will stay above the strike price.

Should I buy to close or sell to close?
‘Sell to Close’ is used when you want to close a long option position that you bought by using a ‘Buy to Open’ order. ‘Buy to Close’, on the other hand, is used when you want to close a short option position that was opened with a ‘Sell to Open’ order.

When should I sell to open a put option?
You should ‘Sell to Open’ a put option when you believe the underlying stock’s price will stay the same or increase. If the stock’s price remains above the option’s strike price by expiration, the option will expire worthless, and you keep the premium received from selling the put.

How can I make money selling to open?
You make money from ‘Sell to Open’ by collecting the premium from selling the call or put options. If the options expire worthless, you keep the entire premium. If the price of the stock stays within a certain range, it’s possible to profit from the premiums without having to buy or sell any shares.

Do you buy or sell to open a put?
You can do either, depending on your trading strategy. If you believe the price of the underlying asset will decrease, you can ‘Buy to Open’ a put. If you think the price will not decrease, you can ‘Sell to Open’ a put, collecting the premium.

What happens when you sell to open a put option?
When you ‘Sell to Open’ a put option, you’re selling someone the right to sell a certain stock to you before a specific date, at a predetermined price. If the stock’s price stays above the strike price, the put option will expire worthless and you keep the premium. If the price falls below the strike price, you may have to buy the stock at the strike price.

Can you sell to close before expiration?
Absolutely. You can ‘Sell to Close’ an option any time before the option expires, provided there’s a market for your option. You don’t have to wait until expiration to close your position.

When should you buy to close an option?
You would ‘Buy to Close’ an option when you want to close a short option position that was initially opened with a ‘Sell to Open’ order. This is typically done when you want to lock in your profits or limit your losses.

What is the difference between open and close in trading?
In trading, ‘open’ and ‘close’ refer to the start and end of a trading day. However, in the context of options trading, ‘open’ refers to initiating a position, while ‘close’ refers to terminating a position.

What is open vs close in trading?
‘Open’ in trading refers to initiating a position, either long (buy) or short (sell). ‘Close’ refers to exiting or terminating that position. This could mean selling a stock you bought or buying back an option you sold.

What is the difference between open and closing price?
The opening price of a stock is the price at which the first trade of a given day occurs, while the closing price is the price of the last trade of the day. These prices can provide insights into the stock’s performance over the day.

Should I buy or sell when bearish?
When you have a bearish outlook on a stock, you generally want to sell or ‘go short’. This could involve selling stocks you own or selling short using other securities like options.

Is bullish buy or sell?
When you’re bullish, you generally want to buy. This could involve buying stocks or buying call options. A bullish outlook implies that you expect the price of the security to rise.

Should I buy bullish or bearish?
If you’re bullish on a stock, you would typically look to buy. This could be buying the stock itself or buying a call option. If you’re bearish, you might consider selling or shorting the stock, or perhaps buying a put option. The choice between buying and selling depends on your market outlook and trading strategy.

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