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Elimination of a long or short position by making an opposite transaction. Related: Liquidation.


To change from a long position to a short position or from a short position to a long position. A long position is ownership of a security, while a short position is debt. Thus, to offset a long position is to sell a security, and to close a short position is to buy out the debt.


The liquidation of a futures or option position by purchasing (for a short position) or selling (for a long position) an equal number of identical contracts so that no further obligation exists.


You offset an options or futures position by taking a second position in a contract with identical terms, buying if you sold initially or selling if you bought initially.

With the offset, you neutralize any potential obligation you had to fulfill the terms of the contract, and you may make a profit or reduce a loss with the transaction.

For example, if you'd sold an equity call option that is close to being in-the-money, you might buy an offsetting call option. That neutralizes your obligation to deliver the underlying stock if the option you sold is exercised.

In a tax context, you can use capital losses to offset an equivalent dollar amount of capital gains, or up to $3,000 in capital losses to offset ordinary income. In either case, the offset allows you to reduce the tax you owe.

Further, banks have the right of offset if a borrower defaults on a loan. That right allows a bank to seize assets in the borrower's deposit accounts with the bank to reduce or eliminate any loss on the loan.

References in periodicals archive ?
TO QUALIFY FOR HEDGE ACCOUNTING, an entity must demonstrate a hedging relationship to be highly effective in achieving offsetting changes in fair value or cash flows for the risk being hedged.
28 per cent (and 39 per cent of men) had no intention of offsetting their carbon footprint in the next year and a further quarter were still undecided five per cent cited a lack of interest in the environment as a reason for not offsetting, while another five per cent did not see it as their responsibility
First, it constructed a very narrow identified straddle rule, which provided that if a taxpayer acquired offsetting positions on the same day, identified them as a straddle and disposed of them on the same day, neither position would be subject to the loss deferral rule.
39, Offsetting of Amounts Related to Certain Contracts, clarifies the circumstances under which amounts recognized for individual contracts may be offset against amounts recognized for other contracts and reported as a net amount on the balance sheet.
As discussed, assuming pro rata income generation throughout the tax year, the rule is intended to prevent loss carryovers acquired by a taxpayer from offsetting income generated prior to the acquisition.
The proposal, effective for periods ending after December 15, 1991, also would provide an exception to the general principle to permit offsetting of market value amounts recognized for multiple forwards, swaps and similar contracts executed under master netting arrangements.
In TEI's experience, the offsetting across types of tax and even particular taxpayers (i.
Offsetting can effectively save the 1% differential during the period that the underpayment and overpayment overlap.
Section 6402(a) of the Internal Revenue Code provides the basis for offsetting credits: "[i]n the case of any overpayment, the Secretary, within the applicable period of limitations, may credit the amount of such overpayment, including any interest allowed thereon, against any liability in respect of an internal revenue tax on the part of the person who made the overpayment, and shall .