How to Close an Options Trade on Robinhood

Ever wondered how to close an options trade on Robinhood without breaking a sweat? It’s easier than you might think, and knowing how to execute a proper exit strategy can save you time, effort, and potentially, money. If you’ve already opened an options trade and things are moving fast, it’s important to understand how and when to close the trade, especially on a platform as streamlined as Robinhood. This article will walk you through every detail you need to know to confidently close your options position on Robinhood, whether you’re looking to take profits or cut losses.

Why Knowing How to Close Options on Robinhood Matters

Imagine this: You’re holding an option and it's moving in your favor. Suddenly, you notice your profit target is met. But here's the catch: you hesitate to close because you're unsure of the steps. Or, maybe the trade is going against you, and you want to exit before your losses deepen. Either way, knowing how to quickly and efficiently close an options trade on Robinhood can make all the difference. And that’s what we’re here to help with.

What Is an Options Trade, Anyway?

Before we dive into the nuts and bolts of closing an options trade, let’s quickly go over the basics of options trading.

Options are contracts that give you the right, but not the obligation, to buy or sell an asset (like a stock) at a specific price before a set expiration date. On Robinhood, you can trade various types of options, such as:

• Call options: You have the right to buy shares at a certain price before the expiration date.
• Put options: You have the right to sell shares at a certain price before the expiration date.

When Should You Close an Options Trade?

Knowing when to close your options trade is as important as knowing how to. Timing your exit is vital, and a smart trader keeps an eye on market signals, expiration dates, and price movements to optimize profits or minimize losses. Here are some scenarios when you might want to close your options trade:

1. Take Profits: Your trade is profitable, and you’re satisfied with the returns.
2. Cut Losses: The market is moving against your position, and you want to limit your downside.
3. Expiration Date Nearing: The closer you get to the expiration date, the more sensitive your option becomes to market volatility. Exiting early avoids the risk of your option expiring worthless.
4. Changing Market Conditions: Sometimes, the market moves in unpredictable ways. Closing your trade early might protect you from unexpected price swings.

Steps to Close an Options Trade on Robinhood

So, how exactly do you close your options trade on Robinhood? Whether you’re using the app on your phone or trading on your desktop, the process is remarkably straightforward. Here’s a step-by-step guide:

Step 1: Open Your Robinhood App or Website

Start by opening the Robinhood app on your phone or go to the Robinhood website on your desktop. Make sure you are logged into your account.

Step 2: Navigate to Your Options Position

On the home screen, you’ll see your portfolio, including the stocks and options positions you hold. Scroll down or use the search bar to find the options contract you want to close.

Step 3: Select Your Options Trade

Tap or click on the specific options contract. This will bring up more detailed information about the position, including its current market value, expiration date, strike price, and whether it’s a call or a put option.

Step 4: Tap “Sell”

Here’s where the magic happens. To close your trade, you’ll need to sell the option contract you originally bought. Look for the “Sell” button on the contract details page. Robinhood makes this straightforward by displaying clear options for you.

Step 5: Enter the Number of Contracts

You’ll be asked to specify how many contracts you want to sell. If you only want to close part of your position, you can do so by selling fewer contracts than you hold. However, if you want to close the entire trade, simply enter the total number of contracts.

Step 6: Review the Order and Execute

Before finalizing, Robinhood gives you a chance to review the details of your trade. Take a moment to ensure everything looks correct: number of contracts, option type, and the price you’re selling at. Once you’re ready, hit “Submit” or “Review” to place your order. Robinhood will then attempt to execute your sell order at the best available price.

Step 7: Confirmation

After placing your order, you’ll receive a confirmation when it is executed. If the market is open, this typically happens within seconds. You can verify the closure of your position by navigating back to your portfolio page.

Avoid These Mistakes When Closing an Options Trade

1. Waiting Too Long: Don’t hold an option until the very last minute unless you’re fully prepared for the risks. Options lose value faster as they approach expiration, and market conditions can change rapidly.

2. Ignoring Fees: While Robinhood is known for zero-commission trading, there are still regulatory fees associated with options trades. Make sure to factor these in when you’re calculating potential profits.

3. Overlooking Implied Volatility: Implied volatility impacts the value of an option. If volatility spikes unexpectedly, it can reduce your profits or increase your losses, so keep an eye on volatility metrics when trading.

4. Exercising Instead of Selling: In many cases, you’re better off selling the option rather than exercising it. Exercising the option means buying (for calls) or selling (for puts) the underlying stock at the strike price, but that often involves more capital than necessary.

What Happens If You Don’t Close an Options Trade?

If you let your options contract expire without closing it, one of two things happens:

• In-the-money (ITM): Your option will be automatically exercised, meaning you’ll be required to buy or sell the underlying stock at the strike price. This might not be ideal if you don’t want to own the stock or if you don’t have enough capital.

• Out-of-the-money (OTM): The option expires worthless, and you lose the entire premium you paid for it. There’s no further action required on your part, but you walk away with a total loss of your investment.

Can You Close a Spread or Advanced Strategy on Robinhood?

Yes! Robinhood allows you to close multi-leg options strategies like spreads. Here’s a quick overview of how to close a spread:

1. Open Your Position: Just like with single-leg options, open the app and find the spread you want to close.

2. Sell the Spread: Tap the “Sell” button. The app will display all legs of the spread in a single transaction. You can close the entire spread at once by selling it.

3. Review & Submit: Review the spread details, including the combined premium. Once you're satisfied, submit the order.

Conclusion: Master the Art of Closing Options Trades on Robinhood

By now, you should feel confident in closing your options trades on Robinhood. The platform's user-friendly interface simplifies the process, but your success as a trader hinges on understanding both the market and your exit strategy. Timing is everything, and knowing how to execute the closing process effectively can save you from unnecessary losses or help lock in significant gains. Keep practicing, and soon you’ll be managing your options trades like a pro.