Physical vs. Cash Settlement Options
The difference between physical and cash settled options is quite easy to understand and very important, depending on the types of securities you are trading (like index options for example). Physically settled options are contracts whereby the settlement requires actual delivery of the underlying stock like GOOG or AAPL shares. Cash settled options are contracts whereby the settlement does not require the actual underlying security but rather the cash value of the options at the time of expiration. These would be mostly the indexes, like SPX and RUT.