Cash Settled Options

A cash-settled option pays a contractual cash amount instead of requiring delivery of shares or another underlying asset. Cash settlement is common for stock-index options, but it is a product specification rather than a universal rule for every option.

Settlement amount versus profit

For a conventional call, settlement is max(reference settlement value − strike, 0) times the multiplier. For a put it is max(strike − reference settlement value, 0) times the multiplier. Trading profit also includes the premium paid or received and transaction costs.

Which price and which date?

The reference may be a special opening calculation, a closing value or another defined observation. The last trading time can precede settlement. Exercise style and broker instructions also matter; cash settlement alone does not tell you whether an option is American-style or European-style.

Read the product specifications and see index exercise and assignment.