First Notice Day

The first notice day is a contractual boundary: the earliest date a holder of a short futures contract may formally notify the exchange of intent to deliver the underlying commodity. Once first notice day arrives, shorts can deliver at will, and longs must be prepared to accept. For hedgers and speculators, first notice day marks the moment when financial trading gives way to physical settlement logistics—and it is a date every short must watch carefully.

Why markets need a first notice day

A futures contract is a bargain: you can hold a short position indefinitely without delivering, provided you roll the contract forward each expiration cycle. But when a contract is about to expire, the exchange must enforce settlement—either through physical delivery or cash payment.

First notice day solves a practical problem. If shorts could issue delivery notices at any moment, longs would never know when goods might arrive. A long might be holding a position on March 1st expecting to trade out by March 15th, only to receive a surprise delivery notice on March 14th and be forced to accept goods they did not plan to store.

By setting a fixed first notice day, the exchange signals to all long holders: “From this date forward, be prepared to receive delivery.” Longs who do not want physical goods have a clear warning and a window to close their positions. Shorts have a defined range of dates within which they may deliver.

The existence of first notice day also protects market integrity. A short cannot use the threat of delivery as a squeeze tactic by holding a small supply and announcing delivery at the last nanosecond. The delivery notice must be filed well in advance, giving the long time to prepare and the exchange time to match positions and arrange logistics.

Timing relative to expiration

First notice day is always before the last trading day, creating a window of 2–5 business days. For example, a commodity futures contract expiring on the 20th of a month might have first notice day on the 15th or 16th. This gap allows the exchange and brokers time to process notices and arrange physical transfers.

The exact calendar varies by contract. Crude oil futures traded on the NYMEX have a first notice day several days before expiration. Corn futures on the CBOT have different timing than soybeans. Treasury bond futures have their own calendar. Traders must consult the contract specification sheet, which is published by the exchange and updated annually.

What changes on first notice day

Before first notice day, a short position is purely financial. The short can close out at any time by buying an offsetting contract, realizing whatever profit or loss has accrued. The short has no obligation to deliver; the exchange asks for nothing except daily mark-to-market settlement.

The moment first notice day arrives, the nature of the short position changes. The short now has the right to deliver and, implicitly, the intent to do so unless they exit. A long position is no longer a safe financial bet—it is a potential receipt of physical goods.

For longs, this shift is significant. A long who wanted to hold for speculative profit (betting on price moves) must now decide: Do I exit before delivery becomes possible, or am I prepared to take physical delivery if necessary? Many longs who shorted the contract earlier will have already closed their positions and are no longer in the market. Those who remain have either exited or accepted the delivery risk.

This is sometimes called the “passing the gate” effect: once first notice day passes, the nature of the contract changes from financial to physical, and many traders exit.

The short’s decision: deliver or roll

A short who reaches first notice day has two main options. First, they can deliver. They file a delivery notice with their broker, which submits it to the exchange. The short then incurs the cost and logistics of moving goods to the delivery location. The short receives payment at the futures price set at final settlement.

Second, they can roll forward—close out the expiring contract and buy a new contract in a deferred month. Rolling is free (aside from commissions) but exposes the short to the basis between the near and deferred contracts. If the market is in contango (far contracts trading higher), rolling costs the short money. If the market is in backwardation (far contracts trading lower), rolling can be profitable.

The short’s choice depends on the market structure, the short’s carrying costs (cost of financing or storing the commodity), and the trader’s outlook. A short with abundant supply might deliver to capture the cash. A short who expects the market to continue rising might roll and profit further.

Implications for long holders

For a long, first notice day is a warning to make a decision. A long can:

1. Close the position by selling the contract, exiting the market entirely.
2. Prepare to receive delivery, arranging for warehouse space, insurance, and handling if the short delivers.
3. Roll forward (if permitted and if the long is still bullish), moving to a deferred contract to extend the position.

Most longs who do not want physical goods will have closed by first notice day. Retail traders especially rarely hold through delivery, as the logistics and costs are prohibitive for small positions.

Longs who do hold can sometimes negotiate with the short (via an intermediary) to roll both positions forward together, or to agree on a delivery location that suits both parties. But once first notice day passes, the long has accepted the risk that delivery may be forced.

Practical example: an oil trader’s perspective

Imagine you are short 10 crude oil futures contracts (1,000 barrels). The contract expires on March 20th, and first notice day is March 15th. On March 14th, the contract is still trading; you can still buy 10 contracts to close out and walk away.

On March 16th, after first notice day has passed, you see that oil prices have fallen further and your short is in profit. You think prices might drop more, so you decide to hold and deliver. You file a delivery notice for 1,000 barrels of West Texas Intermediate crude at a Houston terminal. The exchange matches you with a long who must accept delivery.

Alternatively, you might look at the contango curve and see that the April contract is trading at a profit relative to March. You decide to roll: you sell your March short, buy an April short at a slightly higher price, and continue your bet. You avoid delivery and reset the clock.

A long in the same contract, however, must decide by first notice day whether they are willing to receive 1,000 barrels. If not, they sell the contract to exit, likely before first notice day, when liquidity is still active.

The shrinking window of opportunity

As first notice day approaches, the window for orderly exit shrinks. Liquidity in the near-term contract is usually highest before first notice day. Once delivery notices begin circulating, the market thins—traders who do not want delivery have already left.

This dynamic creates a characteristic price pattern: the near contract may widen or narrow against deferred contracts as first notice day approaches. If many shorts intend to deliver, the near contract may actually strengthen relative to the deferred contract, because its supply is about to be reduced (delivered) and the deferred contract has supply for later.

Understanding first notice day is therefore not academic—it shapes trading strategies, execution costs, and the ability to exit large positions gracefully.

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