Skip to main content
Asked a question 2 years ago

What is cash settlement & how does it work?

Join FYERS Community to pick others' brains on Trading/Investing

If this question is in reference to cash settlement of itm options contract on expiry, it is explained here

https://fyers.in/school-of-stocks/chapter/options/introduction-to-options.html#Option-exercising-style31

In short, If the options contract you purchased or sold expires as "in the money" you are not required to deliver or take delivery of the underlying asset. All you do is settle the difference with the counter party and they or you can do what they/you like with the money gained.

Hi Praveen,

Cash settlement means instead of shares the client will receive cash, wherein the auction settlement will happen between client to client, who buys and sells the stocks on the same day. 

On the auction day, the Short delivering client account is settled with the auction price prescribed by the exchange. In case if there is any internal adjustment (cash settlement) between the clients, we shall credit the buyer the amount equal to his investment or the buying price and the same shall be debited from the defaulting client. 

Thank you.

Related Questions