Gaurab Purohit - 2023-02-13
What Is a Delivery Point? The delivery point, in futures contracts or other derivatives, is the location where the physical commodity underlying the contract will be delivered. The futures contract buyers who maintain their position must be ready to accept the delivery and pay the agreed-upon price for the physical commodity. However, the delivery point applies only to future contracts that stipulate the physical delivery of the asset. Contracts that are cash-settled do not engage in physical delivery. KEY TAKEAWAYS A delivery point is an agreed-upon location where the underlying asset related to an expired derivatives contract is physically delivered from the short to the long. Futures contracts will specify a standardized commodity to be delivered at a specific delivery point (or points if multiple geographic locales exist). Depending on the commodity to be delivered, storage and delivery costs will vary and be reflected in the price of the derivatives contract. Understanding Delivery Points The delivery point is a vital element in writing futures contracts. The chosen delivery point will affect the net delivery price or cost of the underlying asset. The terms of the delivery underwrite the value of the goods delivered. With physical delivery, the price of commodities differs by location due to the costs of transporting them from their source to the delivery point. Thus, to specify a single price of a commodity for contract purposes, the delivery point is an essential detail.
