Once you have established a position in futures or options, you have several possibilities for achieving your desired goal and closing out the position.
Futures
- Settlement of futures
You wait until the end of the contract term and then fulfill your obligation to buy or sell. - Closing out futures
You exit your position during the contract period by offsetting an original long position with a short position, or vice versa. The resulting profit or loss is paid out to you in cash, or you must cover it in cash.
Options
- Exercise and expiration of options
As an option holder (long position), you exercise your option and thereby assert your right to buy or sell the underlying asset. Of course, you do this only if it allows you to realize a profit or minimize a loss. Otherwise, you let your option expire. If the option is exercised, you, as the option writer, must fulfill your obligation to buy or sell and accept the resulting loss. However, this loss is offset by the option premium you previously received. The net result can therefore still be positive, even if the option is assigned to the option writer. For stock options, settlement occurs through delivery; for index options, through cash settlement. - Closing out options
With options – regardless of the position you originally took – you have the option to close out your position at any time. You can resell a purchased option or repurchase a sold option. This allows you to realize the profits you’ve earned so far or minimize a looming loss.
Closing out a position is the most common – and generally also the most cost-effective – way in the futures and options market to realize profits or limit losses.
