Physical Delivery vs Cash Settlement

Summary

Settlement style determines whether exercise or assignment results in stock delivery or a cash amount. In the playbook, this is a core mechanics check because similar options can produce very different operational outcomes.

Definition

Physical delivery versus cash settlement refers to how an exercised or expiring in-the-money option is settled. The article explains that some products settle through stock delivery while others settle in cash, so the same in-the-money outcome can create either a stock transaction or a cash amount depending on product terms. This distinction matters because it changes what the trader must be prepared to fund, receive or deliver. A stock-delivered product can lead to a share purchase or share delivery obligation, while a cash-settled product produces a cash result instead. In practical use, the playbook places settlement style near the start of every trade review because it shapes assignment handling, expiry planning and whether the position can create inconvenient or underfunded outcomes if left unmanaged.

Sources

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