Can Standardized Options on Cryptocurrency Be Physically Settled?
While possible, most standardized cryptocurrency options, such as those on the CME, are cash-settled. Physical settlement would require the delivery of the actual cryptocurrency, introducing custody and transfer risks.
Cash settlement is preferred as it is logistically simpler and avoids the complexities of managing the underlying volatile asset, though some native crypto exchanges offer physically settled options.
Glossar
Physically Settled Bitcoin
Settlement ⎊ Physically settled Bitcoin refers to derivative contracts where the actual underlying cryptocurrency, rather than a cash equivalent, is exchanged upon expiration.
Physical Settlement
Delivery ⎊ The concept of physical settlement, within the context of cryptocurrency derivatives and financial options, signifies the actual transfer of the underlying asset ⎊ be it cryptocurrency, tokens, or fiat currency ⎊ rather than a cash-based settlement.
Native Crypto Exchanges
Exchange ⎊ Native crypto exchanges represent a distinct category within the broader digital asset trading ecosystem, characterized by their operational infrastructure and regulatory framework residing primarily or entirely within the cryptocurrency space.
Standardized Options
Structure ⎊ Standardized options, within cryptocurrency derivatives, represent contracts conforming to pre-defined specifications established by an exchange or clearinghouse, facilitating liquidity and reducing counterparty risk.
Physically Settled Crypto
Settlement ⎊ Physically settled crypto derivatives represent a class of contracts where the obligation at expiry is fulfilled through the direct delivery of the underlying cryptocurrency asset, rather than a cash settlement.
Physically Settled
Settlement ⎊ Physically settled derivatives contracts require the actual transfer of the underlying asset from the short position holder to the long position holder at maturity.