If you’re already active in the stock market, some of the terms and concepts of options trading mechanics will be familiar. When you contact your broker to initiate a trade, you’ll encounter the usual variety of choices — market orders, limit orders, day orders, good-til-canceled (GTC) orders, and so on.
However, the options market has its own unique subset of rules for entering and exiting trades. Do you know the difference between “buying to open” and “selling to open”? And what about “buying to open” versus “buying to close”? Some of these expressions may sound like contradictions in terms for those accustomed to trading stocks, but there’s a method to the apparent madness.
In this section, we’ll explore the basic options trading mechanics all traders must learn to begin playing puts and calls. In addition to cracking the buying/selling code, we’ll also dive into topics such as expiration, assignment, exercise, and automatic exercise.
What’s more, option beginners will also learn the keys to money management, and how to adjust existing option positions to accommodate a shifting forecast for the stock.