Options Trading - Page 2 OPEN AND CLOSE When you buy or write a new contract, you're establishing an open position. That means that you've created one side of a contract and will be matched anonymously with a buyer or seller on the other side of the transaction. If you already hold an option or have written one, but want to get out of the contract, you can close your position, which means either selling the same option you bought, or buying the same option contract you sold. There are some other options terms to know: An options buyer purchases a contract to open or close a position An options holder buys a contract to open a long position An options seller sells a contract to open or to close a position An options writer sells a contract to open a short position All options transactions, whether opening or closing, must go through a brokerage firm, so you'll incur transaction fees and commissions. It's important to account for the impact of these charges when calculating the potential profit or loss of an options strategy. LEAPS Long-Term Equity AnticiPation Securities®, or LEAPS, are an important part of the options market. Standard options have expiration dates up to one year away. LEAPS, however, have expiration dates up to three years away. LEAPS are traded just like regular options, and each exchange decides the securities on which to list LEAPS, depending on the amount of market interest. About 10% of all listed options are LEAPS. LEAPS allow investors more flexibility, since there is much more time for the option to move in-the-money. At any given time, you can buy LEAPS that expire in the January that is two years away or the January that is three years away. Once expiration is a year away, LEAPS are converted to standard options. << Back     I     Next >>

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