what is buy to open 
 buy to open is a term used by brokerages to represent the establishment of a new opening long call or put position in options if a new options investor wants to buy a call or put that investor should buy to open a buy to open order indicates to market participants that the trader is establishing a new position rather than closing out an existing position the sell to close order is used to exit a position taken with a buy to open order establishing a new short position is called sell to open which would be closed out with a buy to close order if a new options investor wants to sell a call or a put that investor should sell to open 1understanding buy to open ordersthe buy and sell terminology for options trading is not as straightforward as it is for stock trading instead of merely placing a buy or sell order as they would for stocks options traders must choose among buy to open buy to close sell to open and sell to close a buy to open position may indicate to market participants that the trader initiating the order believes something about the market or has an ax to grind that is particularly true if the order is large however that does not have to be the case in fact options traders frequently engage in spreading or hedging activities where a buy to open may actually offset existing positions buying to open an out of the money put when purchasing a stock is an excellent way to limit risk the exchange may declare that only closing orders can take place during specific market conditions so a buy to open order might not execute that could happen if a stock with options available is scheduled for delisting or the exchange halts trading of the stock for an extended time stock considerationsthe term buy to open can be applied to stocks as well when an investor decides to establish a new position in a particular stock the first buy transaction is considered buy to open because it opens the position by opening the position the stock is established as a holding in the portfolio the position remains open until it is closed out by selling all the shares that is known as selling to close because it closes the position selling a partial position means that some but not all stocks have been sold a position is considered closed when no more of a particular stock remains in a portfolio buy to close orders also come into play when covering a short sell position a short sell position borrows the shares through the broker and is closed out by buying back the shares in the open market the last transaction to completely close out the position is known as the buy to close order this transaction removes the exposure completely the intent is to buy back the shares at a lower price to generate a profit from the difference of the short sell price and the buy to close price in cases where the share price moves sharply higher a short seller may have to buy to close at a loss to prevent even greater losses from occurring in a worst case scenario the broker may execute a forced liquidation as a result of a margin call then the broker would demand that the investor place money in the margin account due to a shortfall that would generate a buy to cover order to close out the position at a loss due to insufficient account equity buy to open vs buy to closeif an investor wants to buy a call or a put to profit from a price movement of the underlying security then that investor must buy to open buying to open initiates a long options position that gives a speculator the potential to make an extremely large profit with very low risk on the other hand the security must move in the right direction within a limited time or the option will lose all of its value to time decay option sellers have an advantage over buyers because of time decay but they may still want to buy to close their positions when an investor sells options the investor remains obligated by the terms of those options until the expiration date however movements in the price of the security can allow options sellers to take most of their profits much earlier or motivate them to cut losses suppose someone sells at the money puts lasting for a year and then the underlying stock goes up 10 after three months the options seller can buy to close and get most of the profits right away if the stock falls 10 after three months instead the options seller will have to pay more to buy to close and limit potential losses example of buy to opensuppose a trader has done some analysis and believes that the price of xyz stock will go from 40 to 60 in the next year the trader could buy to open a call for xyz the strike price might be 50 with an expiration date about a year from now 