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Settlement

Typically, there are 2 types of settlement (i.e. delivery) at an option’s expiry. Depending upon the contract, traders can choose to settle either physically or via cash.

1- Physical settlement: Physically settled contracts use the underlying asset to execute the contract. For example, when Jack executes a call option for BTC contract with a strike price of 50,000,whichisphysicallysettled,he′sexercisingtherighttobuyat50,000, which is physically settled, he's exercising the right to buy at 51,000. As a Call option buyer, he buys XYZ at $50,000.

2- Cash settlement: A cash-settled options contract is a procedure of settlement in which the contract is settled by the cash equivalent (i.e. USDC) of the underlying asset upon execution if the contract is in its favor. The settlement doesn’t change hands when the option is exercised.

For example, Jack closes his call options (BTC-USDC) position in a cash equivalent settlement that allows him to buy 10 BTC at a strike price of $50,000. The market price is $51,000, so instead of receiving a credit of 10,000asgrossprofit(10,000 as gross profit (51,000 − 50,000×10),he’screditedwiththeamountofUSDCinprofit,whichis50,000 × 10), he’s credited with the amount of USDC in profit, which is 10,000 equivalent of USDC.

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Summary

Cash settlement options don’t involve any exchange of assets when the contract is exercised, relying instead upon the difference between the strike price and the current price to be paid to the buyer. However, a physical settlement option causes a change of assets based on the predefined strike price in an option contract.

Options on DOPP are European options, priced and physically settled in their underlying currency (i.e. BTC settlement for BTC trades; ETH settlement for ETH trades; etc).

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