What happens when an in-the-money commodity options contract expires?

What happens when an in-the-money commodity options contract expires?

In commodity trading, an in-the-money (ITM) options contract does not settle in cash upon expiry. Instead, it automatically converts into a futures contract for the underlying commodity, such as crude oil, gold, or silver.

Key Points to Consider:
  • The newly created futures position follows exchange margin and settlement requirements.
  • Higher margin requirements apply post-conversion, and failure to maintain margins may result in auto-square off by the broker.
  • Traders must actively manage their positions to avoid unexpected obligations.
Managing ITM Commodity Option Settlements:
  • Exit positions before expiry if you do not want a futures contract.
  • Maintain sufficient margin to avoid forced liquidation.
  • Roll over the futures contract if you wish to continue holding the position.

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