Offset Provisions
Chapters in this video
- 0:00 Offsetting: exiting without delivery
- 0:39 The three-step offset mirror image
- 1:45 The same-month requirement and exam trap
- 2:25 The spread trap: different month, not an exit
- 2:55 Standardization and why offsetting works
- 3:18 Most positions offset, not delivered
- 3:30 The memory aid for exam day
- 3:51 Rapid-fire exam recap
What this video covers
- What offsetting is: exiting a futures position by executing an equal and opposite trade in the same contract and same delivery month
- The three-step mechanics of offsetting: longs sell to close, shorts buy to close, and the clearinghouse cancels the obligations one-for-one
- Why zero physical commodity changes hands in an offset, and why only the price difference between opening and closing trades matters
- The same-month requirement: why a December contract offsets only against another December contract, never against a different delivery month
- Why buying or selling a different delivery month does not offset a position but instead creates a spread, leaving the original obligation open
- How standardization (fungibility) makes offsetting possible, and why custom forward contracts lack this feature
- Why the vast majority of futures positions are offset before delivery, and what that means for speculation and hedging
Read the full lesson, free
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