4 Types of Orders
Every individual options trade is the result of one of the four actions:
- Buy to Open (BTO)
- Buy to Close (BTC)
- Sell to Open (STO)
- Sell to Close (STC)
I'm sure you're already familiar with the actions of Buying and Selling. Attaching the word "to open" and "to close" will provide additional context to the trade.
When you purchase a contract to initiate the position you are 'buying to open' (BTO). When you decide to sell your position you are 'selling to close' (STC).
When you write a contract, such as a covered call, you are 'selling to open' (STO). You can close the position by ‘buying to close’ (BTC).
Understanding these concepts is crucial for any trader interested in analyzing flow, and especially for those attempting to follow unusual options flow.
A BTO trade will always be closed via an STC trade, while an STO trade will always be closed via a BTC trade.
What makes distinguishing between 'opening flow' and closing trades difficult is the fact that they are not expressly labeled as such: the flow data does not label a trade as being BTO, STO, etc. Consider that a transaction in which a trader has bought (to close) $1,000,000 in (covered) calls will look very similar in the flow feed to a trader who is buying (to open) $1,000,000 in calls.
For a FULL breakdown of these concepts, with examples directly from the flow, in this article.
If you prefer a video format breakdown, you can head to the Unusual Whales YouTube page and watch this video.