Physical Delivery

DEFINITION of 'Physical Delivery'

Term in an options or futures contract which requires the actual underlying asset to be delivered upon the specified delivery date, rather than being traded out with offsetting contracts.

BREAKING DOWN 'Physical Delivery'

Most derivatives are not actually exercised, but are traded out before their delivery date. However, physical delivery still occurs with some trades: it is most common with commodities, but can also occur with other financial instruments.