Physical Delivery

Definition

The term physical delivery refers to an options or futures contract that requires delivery of the asset, rather than being cash settled.  Physical delivery can be avoided if the trader closes out their position or rolls the contract forward.

Explanation

Options and futures contracts can be settled either through financial means or physical delivery. To avoid physical delivery, however, most contracts are rolled forward or closed out prior to the close-out deadline.  Physical delivery involves the trader taking possession of the contract's underlying asset. Investors that wish to take physical delivery of the asset must coordinate with their broker, the clearing organization, and the exchange.

It's important to note that a broker may not allow a trader to take physical delivery of certain assets.  It is also the investor's responsibility to close out their position before the deadline.  In the event a trader does not close out their position, and the broker does not permit physical delivery of the underlying asset, the broker may liquidate the investor's position without notice.

Related Terms

overwriting, Options Clearing Corporation, open interest, last price