Executing an Option Trade
Trading options can also be more complicated than trading a traditional investment, like a stock, where you simply give an order to buy or sell. With options, there are more choices. You can either 'buy to open,' 'sell to open,' 'buy to close' or 'sell to close.' You open a position by either buying or selling a contract, and can close that position by doing the opposite at any point up until the expiration date.
Opening a new position creates one half of the contract that is matched by another buyer or seller who takes the opposing position. For example, if you sell to open, another investor will buy to open to fulfill the other half of the contract.
When you're ready to make a trade, you do so through a brokerage firm. Whether you're giving the order over the phone or online, you must give the following information to your firm:
- The name and symbol of the option
- Whether you're opening or closing a position
- Whether you're buying or selling
- Whether you want a put or a call
- The strike price
- The expiration month
- Whether you're paying with cash or through a margin account
- Your order type (market, limit, etc.)
You are given the opportunity to review the details of the trade before you agree to it. After you give your final consent and your order is submitted, you'll receive an order confirmation if your order is executed.
Because you're going through a brokerage firm, you'll owe a commission every time you make a trade. Though the amount varies from firm to firm, cost is always an important consideration before you pursue any strategy.
Options involve risk and are not suitable for all investors. Detailed information on our policies and the risks associated with options can be found in Scottrade's Options Application and Agreement, Brokerage Account Agreement, and Characteristics and Risks of Standardized Options (available at your local Scottrade branch office or from the Options Clearing Corporation at 1-888-OPTIONS or by visiting www.888options.com). All option accounts require prior approval by Scottrade. Market volatility, volume, and system availability may impact account access and trade execution. Supporting documentation for any claims will be supplied upon request.