Table of Contents
Order actions define how an option position is opened or closed.
- Sell to Open initiates a covered call by creating a Short Position call option.
- Buy to Close exits the short call before expiration.
These actions help manage risk and premium collection in covered call strategies.
A buy-write order combines buying 100 shares with a sell-to-open call, letting you establish a covered call in one step.
Example: Capturing 30% Profit from Covered Calls
- Sell to open a weekly call for $1.00 on stock you already own. This creates the covered call and brings in $100 of premium.
- Later, place a buy-to-close order at $0.70 to repurchase the call. The $30 difference is a 30% profit on the original premium while the shares stay in your account for the next trade.