“Buying it Back” versus “Buying to Close” – Michael C. Thomsett

Here’s one of those terminology fine points: When you close a short option

position,do you "Buy it back" or, more accurately, do you "buy to close?"
If this seems like splitting hairs (or is that splitting shares?) it may well be.

But when it comes to options, terminology should be very exact. If you

have an open short position and you place a "buy to close order," you are

not "buying it back." This phrase is seen all over the literature, but it is

misleading. To say you are buying something back implies that you once

owned the option, then sold it, and are now re-buying it. This is not the

sequence of events; short sellers never owned the option. It is an open

contract only because it was previously sold.
We options traders have to live by the words, "A little accuracy saves tons of
explanation." – Saki, (aka H.H.Munro)
About this week’s Heavy Hitter
Michael C. Thomsett is a widely published options author, with six options
books in print, published by John Wiley & Sons, FT Press, Amacom Books, and
Traders Library. He blogs at FT Press and The CBOE.
Michael C. Thomsett