Options Settlement - How Options Contracts Are Settled

Listed options settlement

Listed options settlement

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Expiration Months: In general, two near-term months plus two additional months in the January, February or March quarterly cycle. However, different exchange programs allow for expiration-month listing beyond the standard method.

Options Settlement by

The clearing house then randomly selects a writer of those contracts, and issues them with an assignment which obligates them to fulfill the terms of the contracts. The end result is basically the same the holder either buys or sells the underlying security (depending on whether it's call or put options), and the writer fulfills the other end of the transaction. There's just another party in the middle that basically makes sure the whole process goes smoothly.

Cash-Settled Options Definition

Position Limits: Limits vary according to the number of outstanding shares and trading volume. The most active stocks have an option position limit of 755,555 contracts smaller capitalization stocks may offer position limits of 755,555, 75,555, 55,555 or 75,555 contracts. Customer hedge exemptions are available.

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Settlement of Option Exercise:
Exercise notices properly tendered on any business day will result in delivery of the underlying stock on the second business day following exercise.

Index options make it possible for investors to seek either profit or protection from price movements in a market as a whole or in broad segments of a particular market.

Whether you are exercising options you own or receiving an assignment on contracts you have written, that part of the process goes relatively unseen and is all handled by your broker.

Physical settlement is the most commonly used form of settlement. Physically settled options are those that involve the actual delivery of the underlying security they are based on. The holder of physically settled call options would therefore buy the underlying security if they were exercised, whereas the holder of physically settled put options would sell the underlying security.

Options on ETFs allow investors to gain exposure to the performance of an index, hedge against a decline in assets, enhance portfolio returns, and/or profit from the rise or fall of a leveraged ETF.

Settlement is the process for the terms of an options contract to be resolved between the relevant parties when it's exercised. Exercising can take place voluntarily if the holder chooses to exercise at some point prior to expiration, or automatically, if the contract is in the money at the point of expiration.

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