In an Option Contract, How Does the Settlement Type Affect the Exercise Process?
For a physically settled option, exercising the contract results in the actual purchase or sale of the underlying asset at the strike price. For a cash-settled option, exercising means the holder receives a cash payment equal to the difference between the final settlement price and the strike price, multiplied by the contract size.
The latter avoids the asset transfer.
Glossar
Final Settlement Price
Valuation ⎊ The Final Settlement Price in cryptocurrency derivatives represents the agreed-upon value of the underlying asset at contract expiration, crucial for determining payouts in options and futures.
Settlement Type Influence
Mechanism ⎊ Settlement Type Influence within cryptocurrency derivatives fundamentally alters risk transfer dynamics, impacting pricing models and counterparty exposure assessment.
Settlement Type
Delivery ⎊ Settlement Type defines the method by which a derivative contract is concluded upon its expiration or exercise, with physical delivery being one option.