Cash-Settled Options

Cash. It’s what your uncle stashes in his walls because he doesn’t trust banks. He also believes that the Illuminati are influencing your music taste and are constantly spying on him from the local water tower. Remember, the eyeball hovering on the back of the Dollar Bill is always watching...

Cash has many other uses aside from becoming kindling in your uncle’s walls. You can use some money to settle options trades depending on the type of contract you hold. A cash-settled option does not require you to take or offer delivery of a physical commodity or related underlying asset. You can just settle the payment in straight cash.

If your contacts go up in value, you receive the difference between what you paid for them and what you sold them for. If they fall in price, you would owe the difference.

Some people claim cash-settled options avoid the need to pay transportation fees or other associated transaction costs. But let’s be serious…if you are using cash-settled options, you were just betting on the rise and fall of the asset price against a counterparty.

There’s a reason they call the stock market the World’s Largest Casino.