Settlement Type
The option contract specifies the manner in which the contract is to be settled.
- Physical settlement - Physically settled options require the actual delivery of the underlying security. An example of a physically settled contract is U.S.-listed exchange-traded equity options.
- Cash settlement - Cash-settled options do not require the actual delivery of the underlier. Instead, the market value, at the exercise date, of the underlier is compared to the strike price, and the difference (if in a favourable direction) is paid by the option seller to the owner of the option. An example of a cash-settled contract is most U.S.-listed exchange-traded index options.
Read more about this topic: Exercise (options)
Famous quotes containing the words settlement and/or type:
“I always consider the settlement of America with reverence and wonder, as the opening of a grand scene and design in providence, for the illumination of the ignorant and the emancipation of the slavish part of mankind all over the earth.”
—John Adams (1735–1826)
“This immediate dependence of language upon nature, this conversion of an outward phenomenon into a type of somewhat in human life, never loses its power to affect us. It is this which gives that piquancy to the conversation of a strong-natured farmer or backwoodsman, which all men relish.”
—Ralph Waldo Emerson (1803–1882)