Settlement
in options trading is the process where the terms of an options contract are
resolved between the holder and the writer. In options trading, the holder is
the one who owns an options contract and a writer is the person who sold the
holder that options contract. Settlement in call options contracts involve the holders
of the options contracts paying the writers for the underlying asset at the
strike price. Settlement in put options contracts involves the holder of the
options contract selling the underlying asset to the writer at the strike
price. After settlement, the options contract will cease to exist and all
obligations between the holder and the writer would be resolved.
Settlement can happen under 2 circumstances; Voluntary exercise by the holder or automatic exercise upon expiration.
The holder of an American Style Option could choose to voluntarily exercise their options any time prior to expiration. Once that happens, settlement takes place between the holder and the writer and the options contract is resolved.
Settlement can happen under 2 circumstances; Voluntary exercise by the holder or automatic exercise upon expiration.
The holder of an American Style Option could choose to voluntarily exercise their options any time prior to expiration. Once that happens, settlement takes place between the holder and the writer and the options contract is resolved.