buy to open or sell to close option clarification

Discussion in 'Ask any question!' started by Yannick, Oct 20, 2020.

  1. Yannick

    Yannick New Member

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    Hi,
    I'm a beginner and I don't understand something:

    -stock current price is 535
    -I want to enter at 526
    -I want to make a promise that I'm going to buy at 526, so I can receive a premium
    -if the stock remain the same or go up i want to receive premium.
    -if the stock price goes down, i receive premium and enter the stock at the price that i wanted anyway

    QUESTION: do I need to buy to open or sell to close Put or call options to achieve this?

    Thank you,
     
  2. StockJock-e

    StockJock-e Brew Master
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    If you want to buy the stock at a lower price and receive a premium, you need to sell to open a 526 put.

    Also known as a naked put.
     
  3. Yannick

    Yannick New Member

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    I'm using the investopedia stock simulator until i feel more comfortable, but there's only the choice to buy to open or sell to close the put options, i dont see the sell to open. I must be in the wrong section.

    thank you!
     
  4. anotherdevilsadvocate

    anotherdevilsadvocate Well-Known Member

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    Perhaps the simulator doesn't let you write options. When you "sell to open" you are writing the contract.

    Note in real life that your broker may not let you sell to open either, if you do not have enough money to buy 100 shares.
     
  5. Yannick

    Yannick New Member

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    Oh I see, maybe it doesnt let you write options you are right. in the other case I'll make sure I have enough money to do that, see if that is the reason.

    Thanks!
     
  6. spindr0

    spindr0 Active Member

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    In order to write an option, you must have a margin account, the appropriate option approval level (Level 3 for spreads and Level 4 for naked options), and sufficient cash or marginable securities to meet the options margin requirement. The exception to this would be cash secured options (Level 1).

    Note that some brokers have different option level definitions (0 to 3, 1 to 4, and 1 to 5). I have based my explanation on the 1 to 4 system).
     

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