Covered Call - If you decide to close out a covered call prior to expiration either to lock in a gain or take a lossyou will need to buy to close the short call you initially wrote.
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The same applies Biy holding a short closf and then attempting to examlle a long position. In this way, the process is similar to short selling stock. Essentially, it is the buying back of an asset initially sold short. For futures and options, the process involves writing a contract to sell it to another buyer. Instead of selling it to take advantage of short-term market conditions and trigger a tax liability, the trader can borrow other shares to sell short. Therefore, while it is possible to do, this sort of transaction is no longer desirable or practical. It's imperative that you understand the differences highlighted above, as this clearly affects whether your position is in profit or in loss which in turn affects at what point you will use a buy to close order to exit that position.
Buy To Close Orders
Hopefully, the option will be worth less than opyion you originally sold it for when it's time to buy it back. The cheapest services are typically offered by online options brokers who tend to be deep discount brokers with very competitive commission structures. This forms a credit spread that achieves its maximum profit as long as the stock price closes above the strike price of the short put. When you originally wrote, or sold, a naked put you received a cash premium and, no doubt, hoped that the underlying stock would close above the strike price of the put so that the put, in turn, would expire worthless.
To illustrate, please see the three examples below. This means the options rise in price when the underlying security goes down and they fall in price when the underlying security goes up.