Are Crypto Options Typically Cash-Settled or Physically-Settled?
Most crypto options traded on major institutional platforms are cash-settled. This means that at expiration, the holder receives the intrinsic value in a cash equivalent (like USD or a stablecoin) rather than receiving the actual underlying cryptocurrency.
Cash settlement is simpler and avoids the logistical issues of transferring large amounts of learn.
Glossar
Crypto Options
Valuation ⎊ Crypto options, representing rights ⎊ not obligations ⎊ to buy or sell a cryptocurrency at a predetermined price before an expiration date, derive valuation from underlying asset price, time to expiry, volatility, and prevailing risk-free interest rates; models like Black-Scholes, adapted for crypto’s unique characteristics, are frequently employed, though parameter estimation presents challenges due to nascent market data and potential for manipulation.
Cash Settlement
Settlement ⎊ Cash settlement, within cryptocurrency derivatives and options trading, represents the fulfillment of a contract obligation through a monetary exchange rather than physical delivery of the underlying asset.
Intrinsic Value
Valuation ⎊ This represents the in-the-money amount of an option, calculated as the difference between the spot price and the strike price, if positive, otherwise zero.
Cash Equivalent
Valuation ⎊ Cash Equivalent representation within cryptocurrency, options, and derivatives contexts necessitates a nuanced approach, differing from traditional finance due to inherent volatility and illiquidity.