Delivery (Options)

Definition

The term delivery refers to the process of fulfilling the terms of an options contract following the notification of assignment.  While delivery can apply to options and forward contracts, a position is oftentimes closed out prior to the expiration date to avoid delivery.

Explanation

When an investor enters into an options contract, the final process of the agreement may call for delivery of the underlying asset.  This can occur on the contract's expiration date or, in the case of an American option, when notification of assignment is received.  For example, the writer of a call option (short option) may be obligated to deliver stock in exchange for cash from the holder of the option.  While the writer of a put option will receive stock in exchange for cash.

If the seller does not close out their position prior to the contract's expiration date, they will be required to either deliver the underlying asset or settle their position for cash.

Related Terms

delta, time decay, debit spread, credit spread