What Is the Concept of ‘Delivery Risk’ in Physically Settled Options?

Delivery risk is the possibility that the seller (writer) of a physically settled option will fail to deliver the underlying asset upon exercise by the buyer. In the context of cryptocurrency, this means the seller may not transfer the required amount of Bitcoin or other crypto to the buyer's account.

This risk is typically managed by the clearing house, which guarantees the settlement and requires the seller to post sufficient collateral.