If I have inherited stocks through employer provided stocks (RSU). I haven't ever placed a "Buy to open" trade.

If I want to sell a CALL option and place a trade (say current stock price is $150) and I am selling a call for a strike price of $180. Should I place the option trade as "selling to close" or "Selling to open"?

  • 1
    D.S. explains it flawlessly. Just note that the words "open" and "close" confusingly refer to the option. Open a position! Close a position! (In terms of options.)
    – Fattie
    Jun 17, 2021 at 22:15
  • As everyone has told you, just be aware that writing covered calls is unfortunately one of those things that is absolutely fantastic, until, it flops: and then you feel disgusted and sick. I have always found it a bit strange because: it is one of those things where the "idea" is you can "get away with it - lots!" But the problem with things where you can "get away with it - lots!" is that it is inherently identical to stating: "You will - in fact - get stung. Either this time, next time, or whatever. You will get stung." Why do something where you literally will get stung?
    – Fattie
    Jun 17, 2021 at 22:19
  • AFAIC, the primary reason to sell a covered call is if you have a target sale price. Otherwise, I'm not that fond of them because of the asymmetric risk/reward profile. Jun 17, 2021 at 23:07

1 Answer 1


If you don't already own the exact option (not the stock), then your order would be "sell to open". You are opening an option position.

If you own that exact option (same type, strike, and expiry) and want to sell it, then you would "sell to close". You are closing a position that you currently own.

Note that selling covered calls (calls when you already own the underlying stock) can be fairly risky. You are essentially reducing your exposure to the stock price by giving up any upside profit above the strike in exchange for getting premium upfront. If the stock goes above the strike, then your profit is limited to the strike price plus the premium you receive (minus what you paid for the stock, which is zero for an RSU). If the stock tanks, you get to keep the premium, but bear the brunt of the loss on the stock.

  • Thanks.. I own the stock, and based on the stocks that I owned I was trying to sell a covered call by doing a "Sell to open" CALL option. My understanding is I am doing a "COVERED CALL" but now my trading account shows the transaction as "Sold Short".. which confused me
    – Ayusman
    Jun 17, 2021 at 21:57
  • 1
    @Ayusman, yes if you "Sell to open", that is called "short selling." A covered call is a particular type of short sale where you own the underlying asset. So this is indeed a both a short sale and a covered call.
    – Daniel
    Jun 17, 2021 at 22:01
  • You sold the option short. But since you own the underlying stock, if the option is exercised you won't be short the stock - it will be sold from your account.
    – D Stanley
    Jun 17, 2021 at 22:02
  • thanks @DStanley, much appreciated. upvoted your answer as well.
    – Ayusman
    Jun 17, 2021 at 22:35

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