What is a Physical or Cash Settlement? Derivatives contracts are either cash-settled on the expiry date of the contract or physically settle on exercise of the contract. When a contract is cash-settled, the net cash value of the contract on the expiry date is transferred between the buyer and the seller. With a physical delivery, the underlying asset of the option or derivatives contract is physically delivered to or from the counterparties on exercise of the contract, which may happen before the expiry date if early exercised. Interested in learning more?