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.
c) is only used for options that are not exercised, i.e. offset against each other.
A normal sale contract is settled by payment (by the buyer) and delivery (by the seller).