What Is the Main Reason Options on Stock Indices Are Typically Cash-Settled? ⎊ Path

What Is the Main Reason Options on Stock Indices Are Typically Cash-Settled?

Options on stock indices are cash-settled because the underlying asset is an index, which is an abstract number representing a basket of stocks, not a single deliverable asset. It is impractical and logistically complex to deliver the component stocks of the index.

Cash settlement simplifies the process by paying the difference between the index value and the strike price.

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Glossar

Stock Indices

Index ⎊ Cryptocurrency-adjacent stock indices, frequently tracking exchange-traded funds (ETFs) or companies heavily involved in blockchain technology, offer a novel avenue for gauging broader market sentiment beyond individual crypto assets.