Unwind a position

(1) In the case of a forward contract, any position still open at maturity necessarily triggers the physical settlement of the underlying, unless the contract is a notional contract like a forward rate agreement, in which case the position is closed by paying the differential rather than by settling the underlying. Prior to maturity, the position may be closed by negotiating with the initial counterparty. (2) In the case of a futures contract, the position is usually closed prior to maturity by a second, offsetting transaction with the same terms as the initial contract (quantity, amount or reference rate, maturity, underlying). Thus, the two transactions cancel each other out and the initial position is then closed. Otherwise, the contract must be settled in cash or by delivery at maturity. (3) In the case of an option contract, there are three ways to close a position, the first two being at the option of the holder: (a) deliver or take delivery of the underlying by exercising the option prior to or at maturity; (b) let the option expire at maturity; (c) take an offsetting position by buying or selling an offsetting option with the same terms as the initial option prior to maturity; in this last case, the two transactions cancel each other out and the initial position is then closed. In the case of an over-the-counter option contract, the position may also be closed by negotiating a way out prior to maturity.