
Start Here
Platform

Tour
Bots 101How it worksLive demo
Tools
Automated tradingOptions backtestingWatchlist scannerPrivate community
Use cases
New investorsStock tradersActive tradersPassive investorsSwing tradersAlgorithmic traders

Templates
By trade type
Stock trading botsOptions trading bots
By strategy type
Bullish options strategiesNeutral options strategiesBearish options strategiesHedging strategies
By style
Active and high frequency botsEvent-based botsTrend trading botsMomentum trading botsStatistic and probability-based botsTechnical analysis botsEarnings strategy bots

Integrations

Pricing
Education

Courses
Overview
By experience
Beginner
What is an options contract?Stock trading vs. options tradingOptions contract specificsCall vs. put options basicsBuying options vs. selling optionsOptions profit and loss diagramsOptions pricing tablesOption moneyness (ITM, OTM, and ATM)Options pricing and the "Greeks"Options expiration and assignmentWhat's our "edge" trading options?Single vs. multi-leg options strategiesSmall account options strategies
Intermediate
Fearless, confident options tradingHistorical volatility vs. implied volatilityPredicting market movesTrade size and capital reservesPortfolio balance and beta weightingHow to choose the best options strategyHow far out to place trades?Strike price anchoring with probabilitiesTips on getting your trades filledAdvanced and contingent orders7 step options trade entry checklist
Advanced
Developing a daily trading routineHow to avoid "Black Swan" eventsAdjusting and hedging option tradesExiting options trades automaticallyOptions strategies we don't adjust (and why)Big picture adjustment strategyWhen to adjust or notAdjusting straddles and stranglesAdjusting credit spreads, iron condors, and calendarsSmarter stop-loss ordersBuilding a diversified options portfolioRolling options trades for duration and premiumOptions expiration week position checklistDealing with stock assignment and dividendsHow to free up trading margin and cash
By subject
Options basics
Why options vs. stocks?What is an options contract?Smart use of leverageOption strike priceOption premiumOption expirationOption contract multiplierProfit and loss diagramsLong call option explainedShort call option explainedLong put option explainedShort put option explainedATM, ITM, and OTM optionsCash vs. margin basicsHigh probability trading definedHow to buy a call optionHow to buy a put optionSingle-leg vs. multi-legWhat is the VIX?Is fundamental analysis dead?
Entering and exiting trades
Game of numbers7 step entry checklistStrong liquidity examplesPicking the next directionScanning for tradesOption pricing table basicsSetting up your trade tabPinning your probability of profitUsing delta for probabilitiesBuy to open vs sell to openBuy to close vs sell to closeMarket, limit, stop loss orders5 types of contingent ordersLimit ordersMarket ordersLimit on close ordersMarket on close ordersAdvanced contingent ordersTaking profits before expirationMechanics of rollingConsider future events
Options expiration
Options expiration explainedWhat is the Options Clearing Corporation (OCC)?Physical vs. cash settlement optionsAmerican vs. European style optionsWeekly options expirationWeekly expiration tags/codesOptions assignment processOptions exercise processTrading timeline (duration)
Bullish options strategies
Bull put spreadBull call spreadLong callShort putBull call backspreadPut broken wing butterflyCall calendar spreadPut diagonal spreadCustom naked putCovered callSynthetic long stock
Neutral options strategies
Short straddleLong straddleIron condorsShort strangleLong strangleIron butterflyUnbalanced iron condors
Bearish options strategies
Bear call spreadBear put spreadLong putShort callBear put backspreadCall broken wing butterflyPut calendar spreadCall diagonal spreadCustom naked callCovered putSynthetic short stock
Portfolio managmeent
No guaranteed tradesDon't do something, sit thereAccount size adjustmentsAvoiding stock market overloadStocks, indexes, & ETFsMonitoring positionsCreating automatic alertsIndividual stock betaPortfolio betaBeta weighting your portfolioUncorrelated industries/sectorsSystematic vs. unsystematic riskEfficient portfolio frontierLimiting undefined risk tradesEconomic calendarConcept of legging
Options pricing and volatility
How to find option price quotesUnderstanding the mathIV vs. IV percentileProbability of profit vs. probability of touchOption probability curveBid-ask spread definedIV expected vs. actual moveThe "Greeks"Fatal pricing errorsInverse ETFsOptions parity
Adjusting trades
#1 adjustment for any tradeWhen to adjust a tradeSingle options trade vs. overall portfolioLeveraging the analyze tabCall spread adjustmentsPut spread adjustmentsShort strangle adjustmentsIron condor adjustmentsShort straddle adjustmentsCalendar spread adjustmentsDebit spread adjustmentsButterfly adjustmentsUsing stop lossesDelta hedgingRolling positionsPairs hedging

Strategies
Long callLong putShort callShort putCovered callCovered putProtective putCollar strategyLEAPSBull call debit spreadBear call credit spreadBull put credit spreadBear put debit spreadLong straddleShort straddleLong strangleShort strangleCall calendar spreadPut calendar spreadIron condorReverse iron condorIron butterflyReverse iron butterflyCall butterflyPut butterflyStrapCall diagonal spreadPut diagonal spreadCall ratio spreadPut ratio spreadCall backspreadPut backspreadLong box spreadShort box spreadReversalStock repair

Topics
OverviewAsset allocationAutomated tradingBehavioral financeBrokersCandlestick patternsChart patternsDividendsEconomic indicatorsEquity investmentsExercise & assignmentFinancial analysisFinancial historyFinancial marketsFinancial modelingFinancial theoriesFundamental analysisFuturesInvestment accountsInvestment taxesInvestor biasesMarket holidaysMarket hoursMarket indexesMarket indicatorsMomentum tradingOptionsOptions pricingOptions settlementPortfolio managementRisk managementStocksStock marketTechnical analysisTechnical indicatorsTrading commissionsTrading platformsTrading psychologyTrend trading
Resources

Workshops

Podcast

Blog
Support

Help Center
Overview
Getting started
What is a bot?Creating a botAutomation typesAutomation editorBot dashboardBot positionsBot logTemplates and cloningKey conceptsSafeguards and limitsPower of botsBest practices
Bot automations
What is an automation?Scanner automationsMonitor automationsEvent automationsEditing automationsReusing automationsCopying automationsOrdering automationsUsing custom inputsBot level inputsAutomation statusesAutomations library
Bot actions
DecisionsOpen positionClose positionNotificationsLoop symbolsLoop positionsBot tagsPosition tags
Bot examples
Genesis 1.0 botGenesis 2.0 botGenesis 3.0 botTrend trading with stocks botPortfolio trend trading botTrend trading with options botMultiple moving averages botTechnical swing trading botTrend and momentum botWeekly credit spread botRecurring iron condors botThe "Honey Badger" botHybrid spreads botHigh IV rank iron condor bot
Decision recipes
Comparing underlying symbol priceEvaluating symbol typeComparing underlying symbol propertiesEvaluating underlying symbol performanceEvaluating underlying symbol standard deviationComparing underlying symbol price to an indicatorComparing multiple underlying symbol indicatorsEvaluating underlying symbol implied volatility rankEvaluating underlying symbol earnings reportingEvaluating underlying symbol price probabilityEvaluating underlying symbol probability within rangeEvaluating bot propertiesEvaluating bot available capital for opportunitiesComparing bot position count to position typeComparing bot position count to underlying symbolEvaluating bot position count to position type and underlying symbolEvaluating bot last position activityEvaluating bot last activity with underlying symbolComparing bot active orders statusComparing bot active orders status with underlying symbolEvaluating bot position availabilityEvaluating bot tagsEvaluating opportunity availabilityEvaluating opportunity return expectationsComparing opportunity attributesComparing opportunity leg attributesComparing opportunity bid-ask spreadEvaluating opportunity probabilitiesEvaluating position performanceComparing profit target to trailing valueComparing position time to expirationComparing position durationEvaluating position underlying symbolComparing position propertiesComparing position leg propertiesEvaluating position typeEvaluating position sideComparing underlying symbol price to position legEvaluating position tagsEvaluating underlying symbol indicator propertiesComparing multiple underlying symbol indicator propertiesEvaluating MACD technical indicatorComparing Bollinger Bands to symbol priceEvaluating stochastic technical indicatorComparing VIX propertiesEvaluating market time of the dayEvaluating days of the weekEvaluating bot switches
Position statement
Activity summaryPosition detailsTrade detailsOpened positionsClosed positionsCanceled positionsOverride positionsExpired positionsPosition historyManually open positionManually close positionImport position
Order pricing
SmartPricingFinal price settingsPosition summaryOrder detailsWorking ordersManual override
Bot templates
Creating new templatesUpdating existing templatesDeleting templatesSharing templatesUpdating shared templatesTemplate best practices
Cloning bots
Cloning existing botsCloning from templateCloning from shared template
Troubleshooting
Using bot logsTesting your botsNot enough capital warningDaily position limit warningTotal position limit warningPricing anomaly warningMissing or invalid input errorDaily symbol limit errorExcessive errors failsafeOverlapping strikes failsafePrice exceeds strike-difference errorOptions expiration protocolDuplicate orders errorOptions approval level errorBot event loopsStock splits and corporate actionsSupported browsersSupported countries
Community forum
Community guidelinesCrafting your introductionSending group messagesSending private messagesAttaching bot templatesReceiving bot templatesAttaching automationsReceiving automationsFollowing tradersPosting publiclyEditing posts and messagesSubscribed discussionsUsing bookmarks
Using backtester
Running a new backtestBacktesting results summaryModifying existing backtestsMy backtestsBacktesting research databaseTop backtestsBacktesting errors
Account settings
My profileTrading accountsConnecting to TDAmeritradeConnecting to TradeStationConnecting to TradierIncompatible accountsPassword managementSession timeoutTwo-step authentication
Technical docs
Infrastructure and securityAutomation structureAutomation behaviorData feedsOrder handlingTrade enforcementsBroker rejection errorsBot limitationsProfit and lossFair value pricingDecision propertiesDecision calculationsParameter selectionCalculating probabilityPlatform indicators

Contact
Send FeedbackReport IssueEmail Us
Option AlphaOption Alpha

LoginFree Trial
EducationCoursesOptions ExpirationPhysical vs. Cash Settlement Options

Options Expiration
Lesson
3
of
10


Options Expiration Explained
6:24


What is the Options Clearing Corporation (OCC)?
3:18


Physical vs. Cash Settlement Options
5:55


American vs. European Style Options
4:08


Weekly Options Expiration
3:08


Weekly Expiration Tags/Codes
4:00


Options Assignment Process
4:22


Options Exercise Process
3:29


Trading Timeline (Duration)
4:39


Option "Mini" Contracts
2:58

Physical vs. Cash Settlement Options

It is important to understand the difference between physical and cash settled options. Physical settlement of an options contract is the most common, and involves the actual delivery of the underlying security, like shares of stock. Cash settlement occurs when cash exchanges hands at settlement instead of an underlying security or physical commodity.
Kirk Du Plessis
Jun 27, 2022
•
6 min video





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.

Transcript

In this video tutorial, we’re going to cover physical versus cash settlement for options trading. As always, we’ll get right into it here, and we’re going to do a quick review here of expiration so that you understand once again just what expiration is.

These vertical lines represent the expiration dates in the future for this particular stock. These are make-it-or-break-it points.

These are points where the stock is either going to be above your strike or below your strike, wherever you want it to be, and you’re going to decide whether you want to get rid of the option and sell it back to the market or buy it back from the market or if you want to actually go through the actual expiration and exercising process.

In which case, you would go into one of the two categories which is physical or cash settlement. If we talk about physical settlement first, what I have up here is a Google certificate for stock.

And physical settlement is where options are settled, requiring that the actual delivery of the underlying security is used. For example: If you have a long call on Google and you exercise your option, then that requires that you get physical shares of Google.

Now, you may not get the actual certificate here sent to your house, but you’ll get the shares delivered into your brokerage account, and now you’ll be long 100 shares of Google at whatever strike price you had.

Most of the options that you’ll find in the marketplace are physically settled options like stock options, and they’re easy to deliver and transfer the stock because the stock is pretty liquid. Most of the options that you trade will be a physical settlement, so you’ll get or deliver the underlying shares.

Now, when we look at another Google call example just for educational purposes, let’s say that you own right now a Google 500 strike call, meaning you can buy Google stock at $500 a share.

If Google closes at 515 which is above your strike price, you can choose to exercise your call option. Owners like you can exercise your option and receive 100 shares of Google stock for $500 per share, so you’re going to have to have about $50,000 on your account to buy those shares which are in and of itself a big feet.

But if you do, then you can buy shares at $500 per share and you can then either hold or sell them right back to the market for 515 per share.

Remember, we can buy the stock at 500 and Google closed at 515, so we can immediately take a $15 per share gain on every share that we sell back to the market. This is the actual physical settlement of Google shares.

Now, let’s say that we’re talking about cash settlements. Cash settlement options are contracts where the settlement is done via payment of cash at the time of expiration.

The only reason that they do this is that this type of settlement is usually preferred when the underlying security is either inconvenient, costly or simply not possible to deliver.

With Google for example, when we were talking about a physical settlement, you could go out in the market and get Google shares.

But for example on the SPX which is the S&P 500 index or on the VIX which is the VIX or the volatility index for the S&P, they don’t have underlying shares. You can’t buy shares of the SPX.

It’s an index that you can trade options on. Those are cash settled, and only cash is exchanged at settlement when you exercise that. If we look at an SPX call example, let's say that you currently own an SPX 1,360 strike call.

That gives you the right to technically buy the SPX index at 1,360. If the SPX index settles at 1,364.59 at expiration, then owners like you receive $459 per contract, the difference between 1,364.59 and 1,360.

You receive that difference for 100 shares or units of the index, and that's how much you receive per contract. Sellers, on the other hand, will just have to pay this premium straight out of their pocket. They don’t have to deliver any shares to you.

They don’t have to go out to the market and buy shares at any price and then deliver them to you at whatever price. They just actually get this money, take it directly out of their account. It’s cash settled and very, very easy. There’s no exchanging of any underlying shares or securities.

Again, most brokers have a feature that will automatically exercise any options that are in the money at expiration. I can’t highly suggest enough that you call your broker today, tomorrow, right now, after you watch this video and find out what their process is for automatic exercising of options.

I know that with most brokers, you can choose to opt out of specific contracts as you get closer to expiration, but at some point, they’re going to have to make a decision, and if they don’t know what you want to do, they’re going to make that decision for you.

Again, know what they charge for expiration exercising assignment and give them a call today so that you understand how the whole process works. As always, I hope you guys enjoyed watching this video and please share the video right below here with any of the social media links with your friends, family or colleagues if you guys like this video.

The transcript is not available yet. Please check back soon.

Options
Option Contracts

No-code, fully automated trading for stocks and options.

HomeAboutLegalStatusContact
©2022 Option Alpha. All Rights Reserved. Patent Pending USSN 63/118,547