What Is the Difference between ‘Gross’ and ‘Net’ Physical Settlement?
Gross physical settlement requires the full notional amount of the underlying asset to be delivered from the seller to the buyer. Net physical settlement involves the delivery of the asset, but the cash difference between the strike price and the market price is also exchanged.
Most options use gross settlement where the full strike price is paid for the asset.
Glossar
Settlement Method
Definition ⎊ Settlement method refers to the procedure for fulfilling the obligations of an options contract at maturity or upon exercise.
Gross Settlement
Settlement ⎊ Within cryptocurrency derivatives, gross settlement represents the simultaneous exchange of assets and their corresponding liabilities, a process crucial for finality and risk mitigation.
Notional Amount
Reference ⎊ The notional amount serves as the principal reference value upon which all cash flows, such as interest payments in a swap or the final settlement value of a futures contract, are mathematically calculated.
Physical Settlement
Delivery ⎊ The concept of physical settlement, particularly within cryptocurrency derivatives and options, signifies the actual transfer of the underlying asset ⎊ be it a digital token or a commodity ⎊ rather than a cash-based offset.