While the holder of a futures contract is obligated to fulfill the terms of the contract, most futures contracts are closed out well before delivery may occur. To avoid delivery and the costs of retendering, futures traders need to fully understand First Notice Day (FND) and Last Trading Day (LTD).
First Notice Day (FND): The first day the exchange can assign delivery to accounts that are long futures contracts.
For physically settled contracts, the exchange may assign delivery starting on first notice day and every day thereafter to Last Trading Day. The trader or hedger who is short the futures contracts may request delivery starting on First Notice Day. For every short who initiates the delivery process, the exchange will assign delivery to the long contract. The exchange assigns deliveries to the futures contracts that have been open the longest.
To avoid deliveries, traders and hedgers who are long futures must be out by the close of the day before FND. If you are not flat heading into the close of the day before FND, you will be long the futures on the statement heading into FND, and they exchange can assign delivery.
Best practices for all traders is to be out two trading days before FND. This way if there are any out trades or errors, you still have a full trading day to get any issues fixed before FND. Traders who still want to be long can always roll into the next month.
Last Trading Day (LTD): The last trading day a futures contract may trade or be closed before delivery.
For both physically settled and cash settled contracts, LTD is the last day the futures contract will trade at the exchange. For cash settled contracts, like the Emini S&P 500 or Lean Hogs, traders who hold long or short futures contracts into the close of LTD will have their positions cash settled based on the day’s settlement price. For physically settled contracts, any trader holding a long or short contract into the close will be part of the delivery process.
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Risk Disclosure
THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.
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