Buy To Cover

The buy to cover order allows you to buy back stocks or options that you have shorted in order for you to fill your position.

When you short a stock you borrow shares of the stock and sell it on the open market. Your hope is that the stock will go lower in value and you will be able to buy it back at a lower price and return it to the broker.

It is often overlooked that you can place a buy to cover order on an option too. If you sell an option you collect the premium and are betting the stock will not get to a certain level. If the premium melts away to just a small percentage of what it once was you can buy the option back to cover your position.

With options you do not have to buy it back. You can let it expire worthless if you want. But if you do you are taking additional risk the longer you hold onto it.