When you place an options trade, you'll see four order types: buy to open, sell to open, buy to close, and sell to close. Understanding the difference is fundamental, and getting it wrong can create unintended positions.

The Four Order Types

Buy to Open (BTO): You're creating a new long position. You pay the premium and now own the option.

Sell to Open (STO): You're creating a new short position. You receive the premium and now have an obligation.

Buy to Close (BTC): You're closing an existing short position you previously sold.

Sell to Close (STC): You're closing an existing long position you previously bought.

Buy to Open: When You're the Buyer

When you buy to open, you're paying premium for the right to do something:

  • Buy to open a call = You have the right to buy stock at the strike price
  • Buy to open a put = You have the right to sell stock at the strike price

    • You want the option's value to increase. For calls, you want the stock to go up. For puts, you want the stock to go down.

    Your risk is limited to the premium you paid. If the option expires worthless, you lose that amount and nothing more.

    Example: Stock XYZ is at $50. You buy to open the $52 call for $1.50.

  • Cost: $150 (1.50 × 100)
  • Max loss: $150
  • Breakeven: $53.50 (strike + premium)
  • You profit when XYZ goes above $53.50

    • Sell to Open: When You're the Seller

    When you sell to open, you're accepting an obligation in exchange for premium:

  • Sell to open a call = You're obligated to sell stock at the strike price if assigned
  • Sell to open a put = You're obligated to buy stock at the strike price if assigned

    • You want the option's value to decrease. Time decay (theta) works in your favor. You profit when the option expires worthless or declines in value.

    Your risk can be substantial if the position isn't covered. Selling naked calls has theoretically unlimited risk. Selling puts risks buying stock at the strike price.

    Example: Stock XYZ is at $50. You sell to open the $48 put for $1.00.

  • Credit received: $100 (1.00 × 100)
  • Max profit: $100 (if XYZ stays above $48)
  • Max loss: $4,700 (if XYZ goes to $0, you buy at $48, minus the $1 premium)
  • Breakeven: $47.00 (strike - premium)

    • Quick Reference

    | | Buy to Open | Sell to Open | You pay/receivePay premiumReceive premium Position createdLongShort Time decay effectWorks against youWorks for you Risk profileLimited to premiumCan be substantial Closed bySell to closeBuy to close | Goal | Option increases in value | Option decreases in value |

    Common Strategy Pairings

    Covered call = Own stock + sell to open a call

    Cash-secured put = Hold cash + sell to open a put

    Long call or put = Buy to open a call or put

    Vertical spread = Buy to open one strike + sell to open another strike (simultaneously)

    Which Should Beginners Use?

    Most beginners start with buying to open because the risk is limited and the concept is simpler. But statistically, selling to open has a higher probability of profit because time decay favors the seller.

    The ideal beginner path: start by understanding buy to open mechanics, then graduate to sell to open through covered calls and cash-secured puts where your obligations are backed by stock or cash.

    OptionsPilot focuses on sell-to-open strategies (covered calls and cash-secured puts) because they offer the best risk-adjusted returns for most retail traders. Understanding both sides of the trade makes you a better decision-maker regardless of which approach you favor.