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
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