In options trading, what does it mean to "close the position"?

In options trading, "close the position" refers to the action of buying or selling equivalent options that effectively negate the initial position taken. When a trader has an open position in options, they hold a contract that gives them the right, but not the obligation, to buy or sell an underlying asset at a specified price before expiration. To close that position, the trader must execute a transaction that offsets their existing position.

For example, if a trader initially bought a call option, they can close the position by selling the same call option. By executing this offsetting trade, the trader is no longer exposed to the price movement of the underlying asset, effectively concluding their investment in that option. This closing transaction is critical for managing risk and realizing any profits or losses associated with the initial trade.

The other choices describe actions that do not accurately represent the process of closing a position. Buying an option and holding it indefinitely does not align with the concept of closing, nor does executing a different trade that does not offset the original position. Letting options expire without taking action is also not synonymous with closing, as it implies allowing the position to lapse rather than actively negating it. Thus, the correct understanding of closing a position is tied specifically to offsetting or