Chapter 04 · Section 4.1

Delivery or Settlement

• 1. Assures the financial integrity of the market.
• 2. Matches trades and facilitates the flow and transfer of funds.
• 3. Provides a mechanism for delivery or cash settlement.

a) always follows delivery; the call holder (put writer) pays the exercise price for the underlying asset.
• b) is a substitute for delivery.
  Yes. Cash settlement replaces the delivery process. Basically, the call writer/ put holder pays the cash countervalue of the underlying asset according to the market price and receives the countervalue according to the exercise price. Continue
  c) is only used for options that are not exercised, i.e. offset against each other.

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