I have traded for some time but usually keep things simple. I often see this term when learning about options.
I understand that buying to open means starting a new position. I am confused about selling to open.
Does it mean selling an option that I do not own yet? How does that process work?
Selling to open means selling a contract you do not own. You receive the premium upfront. Be prepared to buy or sell shares if assigned.
Selling to open means creating a new position by selling options you don’t own. I made $340 last month doing this.
Same here - this totally confused me when I started with options. I jumped into selling puts without getting assignment risk.
Ended up assigned 100 shares of a stock that kept tanking. Lost $220 because I hadn’t planned my collateral right.
That premium feels like free money until you’re stuck fulfilling the contract.
Exactly right. Selling to open means you’re selling something you don’t own yet but you can do this because you put up collateral. For calls, you need cash or shares ready. For puts, make sure you’ve got enough money to actually buy those shares at the strike price. Too many people just focus on collecting that premium and completely forget they might get assigned. Only sell options on stocks you’d actually want to own or sell anyway.
You get the premium upfront but might have to buy or sell shares. I lost $180 on puts once.
Think of it as signing a contract. You receive cash right away but also take on a responsibility.
When selling calls, you promise to sell shares at the strike price if the option is exercised. For puts, you agree to buy at that price.
Be aware that you need enough funds as collateral since you may need to fulfill this obligation.
Sell to open means creating a new option and receiving the premium upfront.
• Call: Must sell shares if assigned
• Put: Must buy shares if assigned
Requires a margin account and collateral.