1

In options:

  • What is the difference between the two?

Assignment: http://www.investopedia.com/terms/a/assignment.asp#axzz1tG3VpKt8

Physical Delivery: http://www.investopedia.com/terms/p/physicaldelivery.asp#axzz1tG3VpKt8

  • Is there something called physical settlement apart from cash settlement? If so, what is it?

  • When do traders prefer settlement over assignment?

3

If you write an option, assignment means that you need to buy or sell the underlying security at the option contract price.

In futures markets, physical delivery means you actually need to take delivery of the commodity. So unless you are a producer or manufacturer (like an airline who needs barrels of jet fuel, or meat packer who needs a few tons of lean hogs), most of the time you want to sell the futures contract to someone who needs the commodity.

Think of physical delivery as assignment for physical goods.

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