Sell to Close
"Sell to close" is the other half of "buy to open." When you initiate a long position by buying to open, the trade will eventually have to be closed. The three ways this can happen is if the option expires worthless, it's exercised, or selling to close it.
Here are some practical examples -
Sell to Close Examples
- Closing a Long Call - If you've previously purchased a long call hoping to capitalize from moves higher in price of the underlying stock, the most likely outcome will involve you selling to close the position.
In order to lock in a profit on a winning trade (or to cut your losses on a losing trade), you simply submit an order through your online broker selling to close your original call. Simple as that.
- Closing a Long Put - In the same way, closing a long put position prior to expiration (where it would either be exercised or expire worthless) requires the same type of closing transaction. Buying to open and selling to close are the two halves of any long option position and have nothing whatsoever to do with what direction you hope the stock moves.
- Closing a Bull Call Spread - In order to close out a spread trade (spread trades are comprised of offsetting long and short positions), you would have to sell to close the portion of the trade that was first initiated with a buy to open, transaction.
In the bull call spread, for example, you initially bought to open a call with a certain strike price and then sold to open a second call at a higher strike price. Closing the spread requires selling to close the first call and buying to close the second call.