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Definition of 'Fungibles'

Futures, options, and securities that are the same (equivalent) and can therefore be used to offset or close out positions in each other. They are considered identical goods and will frequently have many parts that are identical and as such the parts that are not identical are trivial enough to ignore or have no effect on the pricing of the instrument.

Fungible instruments are useful for closing out positions that traders do not want to carry to expiration. A good example of fungible instruments are put and call contracts. If for example you hold a call option (you bought a long call) at a strike price of $50 for June 2008 expiration, then you can close out that position by selling a put option (writing a put) with a strike price of $50 for June 2008 expiration. Of course these options need to be for the same underlying company, commodity, future or currency.

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