matching two financial transactions on a regulated exchange with the same delivery, time and volume against one another to reduce financial obligations.
Eliminating the obligation to make or take delivery of a commodity by liquidating a purchase or covering a sale of futures. This is affected by taking an equal and opposite position: either a sale to offset a previous purchase, or a purchase to offset a previous sale in the same commodity, with the same delivery date. If an investor bought an August gold contract on the COMEX, he would offset this obligation by selling an August gold contract on the COMEX. To offset an option, the same option must be bought or sold; i.e., a call or a put with the same strike price and expiration month.
Liquidating a purchase of futures contracts through the sale of an equal number of contracts of the same delivery month, or liquidating a short sale of futures through the purchase of an equal number of contracts of the same delivery month. Offsetting eliminates the obligation to make or take delivery. See Cover.