Well, assuming he was in a fixed wing, and not a helicopter, and being legitimately told by ATC to "hold position", I guess he's got no other legitimate choice than to orbit. Or fall out of the sky.
But there was a suspicion that ATC was mixing up callsigns. What I would do is "XXX is short final, say again" with that tone of voice that suggests already that what ATC said was totally unexpected and a possible mistake on the ATC side.
Admittedly, short final, 200 feet to go, not much time to start sorting things out