Delivery

Delivery is what happens at the end of certain contracts when the thing that was promised actually changes hands, instead of the position just being closed out for a cash profit or loss. The two places a beginner runs into this word are options and futures, and the mechanics differ slightly between them.

In options, delivery refers to the transfer of shares that occurs when a call is assigned or a put is exercised. If you sold a call and it gets assigned, you must deliver (sell) 100 shares per contract to the buyer at the strike price; if you bought a put and exercise it, you deliver your shares to whoever is on the other side. Either way, stock moves from one account to another, settled through the options clearing system rather than negotiated privately.

In futures, delivery means the seller of the contract actually hands over the underlying asset — bushels of wheat, barrels of oil, a Treasury bond — to the buyer, at a location and grade specified by the exchange, once the contract reaches expiration without being closed out first. Because exchanges can't always demand one exact bond or one exact grade of crop, some contracts allow "equivalent delivery": several similar instruments (say, Treasury bonds of different coupons and maturities) can each satisfy the obligation, usually adjusted by a conversion factor so no side is unfairly advantaged.

The nuance that trips people up is that almost nobody trading actively intends to make or take delivery. Retail traders in futures and most options traders close their position before expiration or exercise/assignment specifically to avoid it, because delivery involves logistics, storage, or a sudden large stock position that a normal trading account isn't set up to handle.