What Is the Tax Implication Difference between Physical and Cash Settlement?
Tax implications vary by jurisdiction, but generally, physical settlement may result in a capital gains event only when the acquired asset is later sold. Cash settlement, however, is often a realized gain or loss event upon expiration or exercise, potentially simplifying the immediate tax calculation but triggering it sooner.
Glossar
Capital Gains Event
Trigger ⎊ A Capital Gains Event is fundamentally a taxable Trigger realized upon the disposition of a capital asset, such as selling cryptocurrency, exchanging one token for another, or the cash settlement of a profitable options contract.
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.
Realized Gain or Loss Event
Event ⎊ A Realized Gain or Loss Event is the specific transaction or expiration that legally and financially crystallizes an unrealized profit or loss into a definitive, reportable figure.