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Options by Michael C Thomsett

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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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