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Opening a new options position by selling a contract you don't own.
Why It Matters
Sell to open creates a new short position - you're now the option seller collecting premium upfront. This is how covered calls and cash-secured puts work. You receive cash immediately but take on the obligation to buy or sell stock if assigned. Opposite of 'buy to open' which creates a long position.
Key Points
- You collect premium immediately when you sell to open
- Creates an obligation - you may be assigned to buy or sell shares
- Close the position with 'buy to close' to exit before expiration
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Common Questions
Opening a new options position by selling a contract you don't own. Sell to open creates a new short position - you're now the option seller collecting premium upfront. This is how covered calls and cash-secured puts work.
Sell to open creates a new short position - you're now the option seller collecting premium upfront. This is how covered calls and cash-secured puts work. You receive cash immediately but take on the obligation to buy or sell stock if assigned. Opposite of 'buy to open' which creates a long position.
You collect premium immediately when you sell to open
Creates an obligation - you may be assigned to buy or sell shares
Close the position with 'buy to close' to exit before expiration