Lesson 9- Order Types

When an investor places an order to buy or sell an option contract there are different order types that can be placed. This lesson will cover the basic order types when trading option contracts.

To begin, there are two types of opening orders when trading option contracts:

Buy To Open (BTO)

An investor purchases a call or put option to open a new position.
Example: An investor purchases a Google call option or a Goldman Sachs put option.

Sell To Open (STO)

An investor sells (writes) a call or put option to open a new position.
Example: An investor sells (writes) a call option on Goldman Sachs or sells (writes) a put option on Google.

There are also two types of closing orders when trading option contracts:

Buy To Close (BTC)

An investor purchases a call or put option that they previously sold. This offsets the STO position that was previously established.
Example: An investor sold (wrote) a Google call option and now buys it back from the market to close out the position.

Sell To Close (STC)

An investor sells a call or put option that they previously purchased. This offsets the BTO position that was previously established.
Example: An investor purchased a Goldman Sachs put option and now sells it back to the market to close out the position.

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Buy To Open (BTO)

Sell To Open (STO)

Buy To Close (BTC)

Sell To Close (STC)