Cash-Based Option

You want to speculate on options, but you don’t ever want to take physical delivery of commodities or own the underlying stock tied to the derivative contract.

You can trade cash-based stock options, which are settled in cash payment.

They enable you to capture the gains out of stock movements, but never require you to purchase the stock when the options expire.

Let’s say you buy a cash-based option on GOOG stock that has a strike price of $1,200.

The stock-option increases in value to $1,250. Rather than buy the stock at expiration, which would require ownership of 100 shares (and cost $120,000 based on the strike price), you would capture the difference, or net value of the deal.

You would, at 100 shares, be looking at a value of $125,000. The difference between the value and the strike price would be ($125,000 minus $120,000 = $5,000).