Chapter 2 The Life of an Option
This chapter describes the transactions involved in trading options. This is confusing for the newly initiated options trader, as there are eight distinct and different actions a trade can take. In a long trade, the process begins with a “buy to open” and ends with a “sell to close.” In a short trade (where the trader sells an option and later cancels it out by buying), the process begins with a “sell to open” and ends with a “buy to close.”
Long trades
Buy to open a call
Sell to close a call
Buy to open a put
Sell to close a put
Short trades
Sell to open a call
Buy to close a call
Sell to open a put
Buy to close a put
This process assumes that as a trader, you are able to enter a series of transactions and to ...
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