Offsetting Contracts
Just like with futures, an option position can be offset by entering an equal but opposite trade - for example, buying if you previously sold or selling if you previously bought. (Remember that an option position can also be cancelled if it expires worthless.) The difference between the price of the option when the trade was initiated and the price when it is offset is the net gain or loss on the trade. Offsetting must be done prior to option expiration, and these differ depending upon the options in question. The holder of a profitable option may, alternatively, elect to exercise the option into a futures, and then offset this new futures position at a profit. He may decide to do this if he believes that prices will continue to move favorably, and so the futures position will further increase in value.
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