cash settlement

Cash Settlement

A settlement method used in certain future and option contracts whereby, upon expiry or exercise, the seller of the financial instrument does not deliver the actual but transfers the associated cash position.

Notes:

For sellers not wishing to take actual possession of the underlying cash commodity, cash settlement is a more convenient method of transacting futures and options contracts. For example, the purchaser of a cotton future that is cash settled, rather than being required to take ownership of physical bundles of cotton, pays the difference between the spot price of cotton and the futures price.

See also: Actual, Approved Delivery Facility, Basis, Basis Grade, Basis Quote, Carrying Charge, Carrying Charge Market, Cash Commodity, Cash Market, Cost of Tender, Current Delivery, Full Charge, Futures Contract

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Cash Settlement

The process by which the terms of an option contract are fulfilled through the payment or receipt in dollars of the amount by which the option is in-the-money as opposed to delivering or receiving the underlying stock.

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cash settlement

Settlement of a futures contract in cash rather than in the asset underlying the contract. For example, stock index futures call for cash settlement because it is not feasible actually to deliver an index or the securities constituting an index.