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
The term delta refers to the rate of change in the theoretical premium paid or received for an option for one unit change in the price of the underlying asset. Delta values for call options will always be positive, while those for a put will always be negative.
Moneyzine EditorNovember 6th, 2024- The term time decay refers to the theoretical decline in the value of an option over time. Time decay directly affects the extrinsic value of an option.Moneyzine EditorSeptember 21st, 2023
The term debit spread refers to an options strategy where the premiums received are less than those paid. Debit spreads result in funds being debited to the investor's account when the position first is established.Moneyzine EditorNovember 6th, 2024
The term credit spread refers to an options strategy where the premiums received are greater than those paid. Credit spreads result in funds being credited to the investor's account when the position is first established.Moneyzine EditorNovember 6th, 2024
