What is a Closing Purchase?
Closing purchases are transactions in which the investor will change his or her written position by purchasing an option with terms that are like those of a recently sold option. The main benefit to this type of action is that the investor can reduce or possibly even eliminate a short position associated with the options involved. This action will tend to have a positive effect on the value of the investment portfolio, and provide the investor with the opportunity to work with an option that carries a longer position. In order to effect a closing purchase, the seller will work with a broker to manage the proper sequence in the combination. Together, the broker and the investor will evaluate the current short positions that are part of the portfolio. An option with a short position will be selected for sale. The broker will then manage the sale of the selected option. At the same time, the broker will identify a purchase of the same option with a longer position, and make arrangements t
Have you thought about making your fortune on Wall Street and the world of high finance? If so, you’ve probably noticed that there are so many different terms and concepts used that you’ve never heard of before. One of these is “closing purchase.” A closing purchase will be made in order to reduce or eliminate altogether a position, which can either be long or short, on a stock or an options series. In order to understand a closing purchase, you first need to understand the meaning of two things: positions and options. A position is finance industry jargon for having possession of a commodity, option, contract or security. They are almost always held in a brokerage account. So, when an investor or broker wants to buy an option, he or she is placing an order that people refer to as “buy to open.” With a closing purchase, conversely, the investor or broker places an order to “sell to close.” A long position means that you actually own the security, and a short position means that you owe
