How Are Crypto Options Contracts Typically Settled?
Crypto options contracts are primarily settled in one of two ways: physically or in cash. Physical settlement means the underlying cryptocurrency is delivered upon exercise.
Cash settlement means the difference between the strike price and the market price is paid in a fiat currency or a stablecoin. Decentralized options platforms often use cash settlement with a stablecoin for efficiency and simplicity.
Glossar
Decentralized Options
Architecture ⎊ Decentralized options represent a paradigm shift in options trading, moving away from centralized exchange reliance towards blockchain-based smart contracts for execution and settlement.
Crypto Options Contracts
Instruments ⎊ Crypto Options Contracts are the formalized, digitally settled agreements representing contingent claims on an underlying cryptocurrency, standardized by expiration date, strike price, and exercise style, either American or European.
Underlying Cryptocurrency
Asset ⎊ The underlying cryptocurrency is the specific digital asset, such as Bitcoin or Ethereum, upon which the terms of the option contract are predicated.
Settlement Process
Clearing ⎊ This phase involves the final confirmation and reconciliation of all trade details between the buyer and seller, often managed by a central counterparty or a decentralized protocol.
Options Contracts
Derivative Instruments ⎊ Options Contracts are agreements granting the holder the right, but not the obligation, to buy or sell a specified quantity of an underlying asset, typically a cryptocurrency, at a fixed price within a set timeframe.
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.