Option settlement is the process that happens after exercise or assignment. Stock is delivered, money is exchanged, positions are updated.
Cash-Settled vs. Stock-Settled
Most options are stock-settled: Exercise or assignment results in actual stock being delivered and cash paid.
Some options (like VIX options) are cash-settled: Only cash changes hands, no actual underlying security moves.
Settlement Process
Exercise (Call):
- You buy 100 shares at the strike price
- Cash leaves your account for the purchase
- Shares appear in your account
Exercise (Put):
- You sell 100 shares at the strike price
- Cash enters your account for the sale
- Shares disappear from your account
Assignment (Call):
- Your 100 shares are sold at the strike price
- Cash enters your account
- Shares disappear
Assignment (Put):
- You're forced to buy 100 shares at the strike price
- Cash leaves your account
- Shares appear
Settlement Timeline
Most options settle T+1 (one business day after exercise/assignment). By next trading day, your position is updated.
Avoiding Issues
- Have cash available if you might be assigned on puts
- Own stock if you're assigned on calls (covered calls)
- Close positions before assignment if you don't want it
Related: Exercise, Assignment, Exercise & Assignment
