How are index options settled?

Index options settle in cash upon expiration, with the settlement amount calculated and paid without involving actual shares. Unlike stock options, which require the physical delivery of shares, index options do not involve transferring the underlying stocks.

Take SPX index options as an example:

• If you hold an SPX call option with a strike price of 4,420 and SPX settles at 4,450 at expiration, the settlement value of your option is calculated as (4,450 - 4,420) × 100, resulting in a profit of $3,000.
• If SPX settles at 4,400, the option expires worthless, and the settlement value is $0.

Note: The contract multiplier for SPX index options is 100.