For example, let's say John Doe sells an option to buy 100 shares of Company XYZ with a strike price of $20 per share. The option expires in one year. Because John is locked into the contract, he cannot just ignore it. So, he enters into an offsetting transaction by buying an identical opposite transaction (buying an option to sell 100 shares of Company XYZ with a strike price of $20 that expires in one year). This offsets the risk he bears with the first option.