What happens when an in-the-money commodity options contract expires?
In commodity derivatives, when an in-the-money (ITM) options contract expires, it doesn’t settle in cash like equity options. Instead, it gets automatically converted into a futures contract of the underlying commodity—such as crude oil, silver, or gold.
Key Points to Consider
- ITM options are physically settled by converting into a futures position
- The futures contract inherits standard exchange margin and risk rules
- Your ledger must have sufficient margin to hold the futures position post-expiry
Managing ITM Commodity Option Settlements
- Exit your ITM option position before expiry if you do not want to hold a futures contract
- Maintain the required margin to avoid auto-square off by FYERS post-conversion
- You can also choose to roll over the futures position into the next contract cycle
Check daily margin requirements during the expiry week to avoid auto-square offs and unexpected debits.
What if...
Scenario | Outcome |
---|
I let an ITM option expire | It converts into a futures contract automatically. |
I lack margin after conversion | FYERS may square off your position due to margin shortfall. |
I want to avoid conversion | Exit your ITM options before expiry. |
Last updated: 25 Jun 2025
Related Articles
Why can't I use the options premium received from selling the options contract?
If you've sold an options contract and noticed that the premium received isn’t available for trading, it’s due to updated regulations from the exchange. These rules ensure better risk management by temporarily restricting access to premiums from ...
Can only a portion of the options contract be exercised?
No, options contracts listed on Indian exchanges are standardized, and partial exercise is not allowed. If you're holding an options contract that goes in-the-money, the entire contract is exercised—not just a part of it. Why Can’t Options Be ...
What happens when a derivative contract expires?
When a contract reaches expiration, different settlement processes come into play based on the type of contract. For cash-settled contracts, such as Index derivatives, all outstanding positions are settled in cash. Any profit or loss you've incurred ...
What happens when a commodity contract is due for compulsory delivery?
In commodity trading, certain futures contracts are marked for physical delivery rather than cash settlement upon expiry. If you hold an open position in such a contract past the notice period, you will be obligated to either take delivery (if you’re ...
Can an option buyer exercise their right any time during the contract's duration?
No, in the Indian derivatives market, option contracts follow the European style of exercise, meaning they can only be exercised on the expiry date, not before. This rule applies to both index and stock options traded on NSE. What Does This Mean for ...