Cash Settlement means a sum of money equivalent to the Strike Price of the option (multiplied by the number of Options contracts) is paid if the option holder chooses to Exercise their rights.
Most stock index Options contracts are cash settled since the index is a composite asset class that itself is derived from many different Underlying instruments. Some commodity Options are also cash settled (or can be if the option holder prefers).
Contributed by: Ralph Windsor
Most stock index Options contracts are cash settled since the index is a composite asset class that itself is derived from many different Underlying instruments. Some commodity Options are also cash settled (or can be if the option holder prefers).
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External Links
Feeling Unsettled by Settlement Valueshttp://www.optioninvestor.com/page/oin/education/opt101/2009/05-30.html
Article describing how stock and index option settlement prices are derived.
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