All futures contracts have expiration dates. There are three basic approaches for managing the expiration of futures contracts:
- Offset your position: Prior to expiration, you may offset by covering (buying back) a short position or selling a long position. You don’t have to wait until the expiration date to complete your trade. Many investors choose to offset equity futures positions before expiration.
Example: A trader takes a long position of two contracts of XYZ company (equal to 200 shares) that expire in December. To offset the position, the trader would subsequently sell two contracts of XYZ with the same expiration month. The trader could just as easily have taken an initial short position by selling two December XYZ contracts and then offset this position by buying two contracts of December XYZ
- Wait until the contract expires, then make or take delivery: On the expiration date, holders of short positions of ETF or stock futures are required to deliver physical shares of the underlying security, and holders of long positions take delivery of the underlying security.
This means that buying a OneChicago single stock future or ETF and holding it until expiration guarantees your ownership of the underlying security after the expiration date. If you offset your position, this process does not apply. If you are considering holding a security futures contract until expiration, consult your brokerage firm regarding its procedures and fees associated with delivery.
- Roll the position over from one contract expiration into the next: If you hold a long position in an expiration month, you can simultaneously sell that expiration month and buy the next expiration month for an agreed-upon price differential. Thus the position is transferred, or rolled forward, and can be held for a longer period.