Delivery is one of the settlement methods for derivatives. At expiration, a contract is settled by either transferring the specified underlying asset to the long position (physical delivery) or by paying the difference between the contract price and the spot price (cash settlement).
In futures markets, some contracts are designed for physical delivery of the underlying asset, while many are cash settled and settled at expiration. The contract specifications define delivery month, the required quantity, quality standards, and the designated delivery location. A delivery notice, assignment, and a transfer of title or receipts are part of the logistics; the clearinghouse guarantees performance and coordinates the process. For commodities, delivery often involves warehouse receipt transfers and compliance with grade standards. For options on futures or forwards, delivery implications depend on the specific instrument: exercising an option on a future can create a futures position that is delivered or settled in cash according to the contract. The choice between delivery methods can influence logistics risk, costs, and liquidity as expiration approaches.
Delivery applies across futures, forwards, and certain option structures. While cash-settled contracts are common in modern markets, physical delivery remains a feature of many commodity contracts and a defined outcome for certain maturities and products.
Example: A physically settled futures contract for crude oil expiring in December requires the party short to deliver the specified quantity of crude to the designated terminal; a cash-settled version would pay or receive the difference between the contract price and the spot price.
Futures contract · Cash settlement · Physical delivery · Forward contract · Options on futures · Settlement price