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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Clearing and Settlement System

Under the cash settlement of index options in India, an index option that is in-the-money at expiry is settled at which price?

An in-the-money index option is settled using the closing value of the underlying index on the expiry day. Settlement is in cash, with the payoff being the difference between that closing value and the strike price.

  1. AThe closing value of the underlying index on the expiry dayCorrect
  2. BThe previous day's settlement price of the option
  3. CThe average index value of the last week
  4. DThe strike price of the option

Explanation

Index options are cash settled and exercised automatically at expiry; the final settlement value uses the closing price of the underlying index on expiry day. The strike determines the intrinsic value but is not the settlement price itself.

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