What Is the Process Called When a Physically Settled Contract Is Closed before Expiration?
The process is called "offsetting" or "closing out." This involves taking an opposite position to the original trade (e.g. if you bought a contract, you sell an identical one). This action cancels the delivery obligation before the expiration date, allowing the trader to realize their profit or loss in cash.
Glossar
Physically Settled Contract
Contract ⎊ This derivative instrument mandates the actual delivery or transfer of the underlying cryptocurrency asset upon exercise or maturity, rather than a cash settlement based on the price difference.
Taking an opposite Position
Action ⎊ Taking an opposite position is a strategic trading action where a market participant initiates a derivative trade whose directional exposure counters an existing asset holding or open position.
Delivery Obligation
Obligation ⎊ Delivery Obligation represents the mandatory contractual requirement for one party to a derivative agreement to transfer the underlying asset to the counterparty at the contract's expiration or upon exercise.