Incident tickets have a button to create a change order.
Is it possible to cancel the incident automatically when create change order button is clicked?
Were you referring to close the incident if the change order is created? If no, there is no option to cancel incident once its get created.
In general I would say that in ITIL terms that would probably be bad practice anyway. You should mark an incident as resolved and then close it one when you are sure that the service has been restored and the incident is resolved. You can't tell for sure if thats the case when you click the create change button. Potentially I can see a case where finsihing a change might create the condition where the associated incidents were automaticlaly closed but not at the point you create the change.
This raises one more question.
What about cases where the incident raised has been incorrectly raised and should actually be a change request.
Should incidents have 'cancelled' status?
Personally I like to keep the status flow simple and so I would probably use a type of resolution status. Maybe "Resolved - Opened in Error" or "Resolved - No action required".
You could use th eterm Cancelled if you wanted too but ideally you want a term that won't then get used for other cases as well so can be clealy identified as happening due to an incident being incorrectly raised when it should have been a change request. The importnat point is that you can identify the tickets that are being opened in error in this way and then analyse them and over time try to reduce the numbers by educating the agents further or by changing the wording in a self service portal to make it clearer or some other continuous improvement activity.