Buy/Sell To Open closes previous position? WTF?

M

maxima120

I have made a handful number of trades in options. So may be my question is pretty stupid.

However I tried to open position where some of orders had same strike as previously held position in opposite direction.

I was kinda confident if there are types of orders as Buy To Open and Buy To Close... so when I want to open a position I send BTO and if I want to close I shall use Buy To Close explicitely.

But half of my spread got closed (the most profitable wing of course) and now I got bunch of useless randomly arranged spreads which will be bugger to close with profit....


My question - is it normal thing to be in the options world and I am just being ignorant and picky?

Or my broker sucks? (BTW - when I asked support - where can I see T&C about such a stupid behaviour he folded and run away).
 
You can't be long and short the same option. So if you were short some options and wanted to do a buy to open to be long them as well, you cannot do it. The broker should have rejected your order in the first place and not let you trade unless you explicitly stated buy to close.
 
of course I can. The question was - what is the 'usual' way in the options retail world.

options are OTC so it is up to the entity who is dealing this for you and local regulations.

the simplest example - cash forex and spreadbetting (which are otc too) - you can have positions in opposite directions.
 
in OTC land you can because you have two separate contracts.

But equity and index options are listed and your counterparty is the OCC. You can only have 1 position on a particular option in a particular account or aggregation unit (if you are part of a larger firm).

I don't understand why you would want to be long and short the exact same contract anyway, unless you like to post margin twice and you like to take unnecessary pin risk (assuming physical settlement)

If it were equity options you were trading, the broker should have rejected your order. That is the normal thing.
 
I suppose it depends on the broker. Thinkorswim (TDA) doesn't even have the concept of BTO or STO, just buy or sell.

(Edit: that was a reply to the comment that the broker should have rejected the order. At ToS I think they would just accept the order and cancel the opposite positions.)

You could always do it in separate accounts.

As an aside, I once found myself long and short a stock due to some fucked up business at Fidelity. I had a covered put position (short put+short stock). I was expecting to be assigned stock which should have canceled the short, just like being assigned on a covered call will sell your long stock out of your account. Instead they just added the long stock to my account. When I called they said I needed to write a physical letter, email didn't count, to request to cancel the position. I closed the account instead.
 
Quote from newwurldmn:
I don't understand why you would want to be long and short the exact same contract anyway
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to be able to manage different spreads separately. I am not trading this for profit but for experience. minus 10 bucks on comms worth not to screw the whole portfolio (which i did anyway).... so. the real answer - cos i am an idiot probably :)
 
Quote from maxima120:

to be able to manage different spreads separately. I am not trading this for profit but for experience. minus 10 bucks on comms worth not to screw the whole portfolio (which i did anyway).... so. the real answer - cos i am an idiot probably :)
More...

What we used to do (and it was a pain in the ass) was do those "netted" options on a spreadsheet, since the economic benefit was negated between the two positions anyway.
 
Order placement that requires BTO/BTC/STO/STC clarifications are usually found at brokers that are time wasters for traders. These clarifications are probably useful for noobs who need multiple layers of verification before having the courage to click TRANSMIT. In a fast market or if price is bobbing about, they're an impediment.

As for Eliot and his Fidelity experience, that's just another wannabe broker trying to compete for traders. If they can't net out offsetting positions, they should be jettisoned as he did.
 
My positions are always netted out the next day. Marking buy (or sell) to open or close has never seemed to matter.

The one exception has been for OEX options, where it is imperative that they are marked correctly, as it can affect the exercise.
 
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