Settlement Types: Cash vs Physical
When an option expires in-the-money, it needs to settle. There are two ways this can happen.
Quick Comparison
| Cash Settlement | Physical Settlement | |
|---|---|---|
| What happens | Pay/receive the cash difference | Actual asset changes hands |
| Delivery | None - just USDC | You get/give the underlying |
| Simpler for | Index options, crypto | Stock options |
| Margin impact | Predictable | Need to handle delivery |
Cash Settlement
With cash settlement, you receive or pay the difference between the settlement price and strike. No actual asset changes hands.
Example - Long Call:
- Strike: $100,000
- Settlement price: $105,000
- You receive: $5,000 (in USDC)
Example - Short Put:
- Strike: $95,000
- Settlement price: $90,000
- You pay: $5,000 (in USDC)
Hypercall Exchange uses cash settlement
Options traded on the main Hypercall Exchange settle in USDC. You do not take delivery of BTC or ETH through an Exchange option position.
Physical Settlement
With physical settlement, the actual underlying asset changes hands:
- Call exercised: You buy the asset at strike price
- Put exercised: You sell the asset at strike price
This is common for stock options where traders actually want the shares.
Why crypto prefers cash settlement:
- No delivery logistics
- Works for assets you can't easily hold (like index prices)
- Simpler margin calculations
- No "delivery squeeze" risk
Settlement Price
For cash settlement, the settlement price determines the payout. On Hypercall Exchange:
- Uses a 30-minute TWAP (time-weighted average price)
- Ends at the contract expiry time. Mainnet SPCX expires at 4:00 PM ET; testnet currently expires at 08:00 UTC.
- Resistant to last-minute manipulation
Automatic Settlement
On Hypercall Exchange, you don't need to do anything at expiry:
- Trading stops at the contract expiry time
- Settlement price is calculated (30-min TWAP)
- ITM positions automatically pay out
- OTM positions expire worthless
- Your balance updates
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