Trade Management
Buying Back Early
Learn what it means to buy an option back before expiration, why an option seller may choose to close early, and how closing a position can lock in profit and remove the remaining option obligation.
What Does Buying Back Early Mean?
When you sell an option, you open a short option position and receive premium. You do not have to keep that position open until expiration.
You can close the position by purchasing the same option contract back. This is commonly called buying to close.
Simple definition
Buying to close means purchasing an option you previously sold so that the short option position is closed before expiration.
Selling to Open vs. Buying to Close
These two orders represent opposite sides of the life cycle of a short option position.
Sell to Open
You sell the option, receive premium, and take on the obligation associated with the contract.
Buy to Close
You purchase the option back. The short position is closed and the remaining obligation associated with that position is removed.
How Profit Works When You Buy Back an Option
When selling an option, the difference between the premium received and the amount paid to close the position determines the option profit or loss before fees and taxes.
Example
Premium Received
$100
Buy to Close
$40
Option Profit
$60
$100 received − $40 paid = $60 profit
This simplified example does not include commissions, contract fees, taxes, or other transaction costs.
Why Close a Winning Trade Early?
An option seller does not have to capture every dollar of possible premium for a trade to be successful.
As the option loses value, more of the original premium has already been earned. At some point, the remaining potential reward may become small compared with the time and risk still remaining in the position.
Lock In Profit
Closing the position realizes the option profit already earned instead of leaving that profit exposed to future price movement.
Remove the Obligation
Once the short option is closed, that contract no longer carries assignment exposure for the seller.
Free Up Capital
Closing a cash-secured put can release the cash that was being held to secure the position, subject to broker processing and account requirements.
Reduce Time in the Trade
Closing early can reduce the amount of time the position remains exposed to changes in the underlying and other market conditions.
The Remaining Reward vs. Remaining Risk
One useful way to think about closing early is to compare what has already been earned with what remains available.
Original Premium
$100
Current Option Value
$25
Profit Captured
$75
In this example, $75 of the original $100 premium has already been earned. Only $25 of additional premium remains available if the option eventually expires worthless.
The question is no longer simply, “Can I make another $25?” The trader can also consider whether keeping the position open for that remaining $25 fits the trade plan and is worth the remaining risk and time.
Cash-Secured Put Example
Suppose you sell one cash-secured put and receive $80 in premium.
Strike
$50
Premium
$80
Current Value
$35
Current Profit
$45
Buying the put back for $35 would close the position and result in a simplified $45 option profit before fees and taxes.
After the position is closed, the seller no longer has the obligation to purchase shares under that specific short put contract.
What If the Option Becomes More Expensive?
Buying to close does not automatically mean the trade is profitable. If the option has increased in value after it was sold, closing the position can require paying back more premium than was originally received.
Premium Received
$100
Cost to Close
$150
Option Loss
-$50
$100 received − $150 paid = -$50
Closing a losing position can still be a deliberate risk management decision. Profit is not the only reason a trader may choose to close an option.
You Do Not Have to Wait Until Expiration
New option sellers sometimes assume that selling an option means they must wait until expiration to find out what happens. That is not the case.
Hold
Keep the existing option open and continue accepting its remaining risk and obligation.
Buy to Close
Purchase the option back and completely close the short position.
Roll
Close the current contract and open another option with a different expiration, strike, or both.
Rolling will be covered separately in the Trade Management section.
Buying Back Early and the OptionEdge Approach
The OptionEdge approach is not designed around squeezing every possible dollar out of every option contract. The goal is to balance income, risk, and the amount of time required to manage positions.
OptionEdge Profit Management Guideline
50%+
OptionEdge generally looks to close profitable short option positions after approximately 50% or more of the original premium has been captured rather than automatically holding every position until expiration.
This is a management guideline, not a guarantee or a rule that makes every trade profitable. Market conditions and individual positions can change quickly.
Sometimes the Best Action Is No Action
Trade management does not mean constantly changing a position. A trader can review a position and decide that the original trade plan still makes sense.
Managing a trade is about making deliberate decisions.
Holding, closing, and rolling are all decisions. The goal is not to react to every small price movement, but to understand the position and respond when the trade plan calls for it.
Common Buying-to-Close Mistakes
Assuming a short option must be held until expiration.
Focusing only on the premium still available instead of considering the remaining risk.
Confusing buying to close with opening a new long option position.
Assuming buying to close always produces a profit.
Ignoring transaction costs when calculating the actual result of a trade.
Holding a nearly completed trade only because a small amount of premium remains.
Closing or changing a position simply because the underlying made a small normal move.
Key Takeaways
A short option can be closed before expiration by buying the option back.
Profit is the premium received minus the amount paid to close, before fees and taxes.
Buying to close removes the remaining obligation associated with that short option position.
Closing early can lock in profit and free capital that was securing a position.
A trader can compare the premium already earned with the premium and risk remaining.
Buying to close can also be used to exit a losing trade.
OptionEdge generally looks to capture 50% or more of the original premium rather than automatically holding every trade until expiration.
Trade management does not require constant action. Holding a position can also be a deliberate decision.