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What Is the Impact of an Illiquid Physical Delivery Market on the Price of a Dual-Settlement Contract?

It can cause the contract to trade at a premium or discount near expiration due to the difficulty and cost of the physical delivery process.
Greeks.Live24.11.25

What Is the Impact of an Illiquid Physical Delivery Market on the Price of a Dual-Settlement Contract?

An illiquid physical delivery market can cause the dual-settlement contract to trade at a premium or discount relative to its fair cash-settled value, particularly near expiration. The difficulty and cost of executing the physical delivery can lead to a divergence.

Traders may price in a premium for the certainty of cash settlement or a discount due to the risk and hassle of taking physical delivery.

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