How Does the Settlement Price Determine the Value of a European Option at Expiry?

A European option can only be exercised at its expiration date. The settlement price, provided by the oracle, is used to calculate the option's final intrinsic value.

For a call option, the value is the greater of (Settlement Price – Strike Price) or zero. For a put option, it's the greater of (Strike Price – Settlement Price) or zero.

This value is then cash-settled, and the option contract is closed.