Opening Sale Open Purchase Closing Sale Closing Purchase

1

I have taken this quiz 12 times and not scored over a 50%! Can anyone simplify and dummy this down for me!? TY!

3 Likes
2

@Faith_Ruecker I will attempt to explain it as I see it. The first thing to look at is anytime you are going “Long” a position, you are buying something, either a put or a call, so this is considered an opening purchase. To close this out, you have to perform the opposite which would be a closing sale. If you started out with going “Short” a position, you are selling something, either a put or a call, so this is considered an opening sale. To close this out, you have to perform the opposite which would be a closing purchase. In options, especially when you get asked the “closed at intrinsic value questions”, I think of it this way. If I pay (go long, holder) to open the option, I get paid to close the option. If I get paid (go short, writer) to open the option, I have to pay to close the option. It’s one of things that I had to just accept that’s how options work even though it didn’t make sense to me at first, but after missing a large portion of the quiz questions it finally started to sink in. Hope this helps!

3 Likes
3

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

Here’s an example question on opening/closing purchase/sale.

In this case:

  • The investor has a new account with no existing positions, so it is an opening transaction
  • They want to short the stock, so they are making a sale
2 Likes