The difference between the price of the first trade and the price of the offsetting trade is the gain or loss. In futures, a bought open position is resold in the market, and a sold open position is bought back in the market1. Options are also subject to offsetting trades: a bought option is resold and a sold option is bought back1. An option buyer who does not make an offsetting trade either exercises the right by the expiry date or lets it lapse unexercised, which is abandonment2.

Consider a hypothetical example with Nikkei 225 Futures (contract unit: 1,000 times the index). A trader buys 1 contract at 15,000 yen and resells it after the price rises to 15,100 yen. The gain is (15,100 − 15,000) × 1,000 × 1 contract = 100,000 yen. With the same price move, a trader who sold 1 contract at 15,000 yen and buys it back at 15,100 yen has a loss of 100,000 yen. If the price moves the other way, the gains and losses reverse. Fees are not included3.

In futures, an open position that is not offset is settled by final settlement after the last trading day3. The same Japanese term, hantai baibai, is also used in margin trading in stocks, where it means buying or selling to return stock or funds borrowed from a securities company1. This site covers the meaning in derivatives.

Notes

  1. Japan Exchange Group, "反対売買" (Offsetting trade), in its glossary (in Japanese), the "【デリバティブ取引】" (Derivatives trading) and "【信用取引】" (Margin trading) sections. ↩ ↩2 ↩3

  2. Japan Exchange Group, "権利放棄" (Abandonment), in its glossary (in Japanese). It defines abandonment as an option buyer not exercising the right even on the last day of the exercise period. ↩

  3. Osaka Exchange, "決済方法（先物）" (Settlement methods (futures)), in "北浜投資塾" (Kitahama Investment School) (in Japanese), the "反対売買による決済" (Settlement by offsetting trade) and "SQ値による決済" (Settlement at the SQ value) sections. ↩ ↩2