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

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...

ScenarioOutcome
I let an ITM option expireIt converts into a futures contract automatically.
I lack margin after conversionFYERS may square off your position due to margin shortfall.
I want to avoid conversionExit your ITM options before expiry.

Last updated: 25 Jun 2025