I am having difficulty understanding closing and opening transactions. I understand it when I read, and then when taking the practice exams, I get them all wrong.
Any tips please?
Hi, it’s best to think of this in two parts:
- Opening vs closing
- Purchase vs sale
Opening vs closing
- If the investor currently is starting a new position, then they make an opening transaction
- If the investor currently is ending an existing position, then they make a closing transaction
Purchase vs sale
- If the investor wants to buy the option, they make a purchase to go long
- If the investor wants to sell the option, they make a sale to go short
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