The term "Cheapest To Deliver" (CTD) is often used when referring to the cheapest security that can be delivered in order to satisfy the contract specifications of a futures contract. CTD is relevant only for contracts that allow a variety of slightly different securities to be delivered, as it determines which security will have the lowest cost associated with it. In most cases, CTD refers to the stock with the lowest trading volume and/or smallest market capitalization. This makes sense because these stocks are generally less liquid and therefore more costly to trade.While there can be some variation in terms of what qualifies as CTD depending on the specific futures contract, typically it is either the stock with the lowest trading volume or smallest market capitalization. This means that investors who hold long positions in a futures contract should keep an eye on which stock is designated as CTD, as this could impact their overall costs associated with holding that position.
