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What is Buy to Open (BTO)?
Buy to Open (BTO) Buy to open (BTO) is an options order action used to establish a new long position by purchasing an option contract. When you buy to open, you pay the option's premium (ask price) and acquire the rights granted by the contract: the right to buy shares (for calls) or sell shares (for puts) at the strike price before or at expiration. This is the most basic entry order in options trading. How it works: In options trading, every transaction has both an action (buy or sell) and an intent (open or close). Buy to open means you are creating a new position by buying. This is distinct from buy to close, which is used to exit an existing short position. When you BTO a call, you are bullish and expect the underlying to rise. When you BTO a put, you are bearish and expect the underlying to fall. Your maximum risk on any buy-to-open trade is limited to the premium paid. For example, you buy to open 5 contracts of the MSFT $420 call expiring in 45 days at $8.50 per contract. You pay $8.50 x 100 x 5 = $4,250 total. This is your maximum possible loss. If MSFT rises to $440 by expiration, each call is worth $20.00 intrinsic value and your position is worth $10,000, giving you a profit of $5,750. To exit the position, you would sell to close the same 5 contracts. Understanding buy to open is essential because brokerage platforms require you to specify the correct order action. Using the wrong action (such as sell to open when you intended to close a position) can accidentally create a new short position instead of closing an existing one. Most brokers default to the correct action based on your existing holdings, but verifying the order action before submitting is a good habit.
Complete definition
Buy to open (BTO) is an options order action used to establish a new long position by purchasing an option contract. When you buy to open, you pay the option's premium (ask price) and acquire the rights granted by the contract: the right to buy shares (for calls) or sell shares (for puts) at the strike price before or at expiration. This is the most basic entry order in options trading. How it works: In options trading, every transaction has both an action (buy or sell) and an intent (open or close). Buy to open means you are creating a new position by buying. This is distinct from buy to close, which is used to exit an existing short position. When you BTO a call, you are bullish and expect the underlying to rise. When you BTO a put, you are bearish and expect the underlying to fall. Your maximum risk on any buy-to-open trade is limited to the premium paid. For example, you buy to open 5 contracts of the MSFT $420 call expiring in 45 days at $8.50 per contract. You pay $8.50 x 100 x 5 = $4,250 total. This is your maximum possible loss. If MSFT rises to $440 by expiration, each call is worth $20.00 intrinsic value and your position is worth $10,000, giving you a profit of $5,750. To exit the position, you would sell to close the same 5 contracts. Understanding buy to open is essential because brokerage platforms require you to specify the correct order action. Using the wrong action (such as sell to open when you intended to close a position) can accidentally create a new short position instead of closing an existing one. Most brokers default to the correct action based on your existing holdings, but verifying the order action before submitting is a good habit.
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Questions
About Buy to Open (BTO).
What does buy to open mean in options?
Buy to open means purchasing an option contract to create a new long position. You pay the premium and gain the rights of the contract. For calls, you gain the right to buy shares at the strike price. For puts, you gain the right to sell shares. Your maximum risk is limited to the premium paid.
What is the difference between buy to open and buy to close?
Buy to open creates a new long position, while buy to close exits an existing short position. If you previously sold to open a call (going short), you would buy to close that same call to exit the trade. The order action tells the broker whether you are entering or exiting a position.
Is buy to open the same as going long on an option?
Yes. Buying to open is how you establish a long options position. You are long the option, meaning you own the contract and have paid the premium. Your risk is limited to the premium paid, and your potential profit depends on favorable movement in the underlying asset's price.
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