Financial Industry Regulatory Authority (FINRA) Practice Exam 2026 - Free FINRA Practice Questions and Study Guide

A transaction in which a writer covers a position by purchasing an option is referred to as a closing purchase. This is because the writer of the option has established a position by selling (or writing) an option contract, and to close that position, they must buy back the same option—effectively neutralizing their obligation.

When an option is written, the writer has specific obligations if the option is exercised by the buyer. To mitigate or eliminate this obligation, purchasing the same option allows the writer to complete the transaction and close out their position. This terminology is important in options trading, as it clearly distinguishes the actions taken—whether one is opening or closing positions related to options.

The closing purchase, therefore, involves the writer taking action to offset their original obligation, while other terms such as opening sale and opening purchase refer to the initial creation of positions rather than the closure of existing ones. Understanding these distinctions is crucial for anyone involved in options trading or related financial activities.