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:
“The Settlement ... is an experimental effort to aid in the solution of the social and industrial problems which are engendered by the modern conditions of life in a great city. It insists that these problems are not confined to any one portion of the city. It is an attempt to relieve, at the same time, the overaccumulation at one end of society and the destitution at the other ...”
—Jane Addams (1860–1935)
“He turned out to belong to the type of publisher who dreams of becoming a male muse to his author, and our brief conjunction ended abruptly upon his suggesting I replace chess by music and make Luzhin a demented violinist.”
—Vladimir Nabokov (1899–1977)