Under what condition would a "buy to open" call option expire worthless?

I did a "sell to open" put option, which expired with the stock price being below the strike price, and I purchased the stock at the strike price. So I wanted to initiate a call option to sell the stock at the same strike price, however, I'm not confident I did this correctly to accomplish my objective. I initiated a "buy to open" call option to sell the stock at the same strike price. I feel I should have done a "sell to open" call option and not the "buy to open" call option; it makes more sense now to "sell" it and not "buy" it, but I'm stuck with it. Obviously I'm new at this. Now that I have this "buy to open" call option on the table, I'm not sure of the outcome when it expires. Does it expire worthless when the stock is above the strike price or below the strike price? Do I initiate a "sell to close" (not sure if a put or call is associated with this) option when the stock price goes up or when the stock price goes down before it expires?

Financial Planning, Stocks
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May 2017

Michels, Kevin

Draper, UT
100% of people found this answer helpful

Sell to open on a put option means that you sell a put option to the buyer which gives the buyer the right to sell you stock at the strike price. Since the stock price was below the strike price, you were obligated to buy the stock at the strike price. If you wanted to open up a new option position, that would give you the right to sell the stock at the same strike price you should have bought a put or "buy to open" on a put option. This would give you the right but not the obligation to sell your stock at a certain strike price.

You initiated a "buy to open" call option which gives you the option to buy the stock at a certain strike price. The holder of a call option hopes the price of the stock rises so they can buy that stock at the strike price.

You think you should have initiated a "sell to open" call option which would oblige you to sell your stock at a certain strike price if the holder exercises. This isn't the outcome you want because the holder will only exercise if the stock price rises and you would be selling it at a loss.

On your current contract, if the stock price is above the strike price, you can sell the option for a profit, you should initiate a "sell to close". If the stock price is below the strike price, then the option will expire worthless.

Read up on options before you deal with them, they can be complicated and confusing and you can really burn yourself. Practice as well before you actually start trading real money.

May 2017
May 2017
May 2017