This is a common point of confusion. When you buy to close a short option, you are still executing a buy order. Your account will often need to have sufficient "options buying power" to cover the cost (the debit) of buying back that contract. Buying to close the short option does not always provide margin relief to fund the closing trade itself.

If you’re looking to create buying power to close your options position, here are a few steps you might consider:

  • Close non-related existing positions that provide margin relief.
  • Close part of a current spread using a multi-leg order (e.g., closing both the long and short calls together).
  • If you’re holding a covered call, consider rolling the short option to a later expiration, provided it’s done for a credit.

Options trading is not suitable for all investors due to its inherent high risk, which can potentially result in significant losses. Please read Characteristics and Risks of Standardized Options before investing in options.

Please note that this article is for general informational purposes only and is believed to be accurate as of the posting date but may be subject to change. The examples above are for illustrative purposes only.

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