Option Settlement
Option settlement is the process by which an option contract is concluded, either through the physical delivery of the underlying asset or through a cash payment. In crypto, this is often handled by smart contracts that automatically trigger upon expiration.
Physical settlement involves the actual transfer of tokens between the buyer and seller. Cash settlement involves transferring the difference between the strike price and the market price in a stablecoin.
The settlement method is specified in the contract terms at inception. Efficient settlement is critical for maintaining market integrity and trust in decentralized protocols.
It ensures that the obligations of the seller are fulfilled according to the agreed terms.
Glossary
Digital Asset
Asset ⎊ A digital asset, within the context of cryptocurrency, options trading, and financial derivatives, represents a tangible or intangible item existing in a digital or electronic form, possessing value and potentially tradable rights.
Systemic Risk
Risk ⎊ Systemic risk, within the context of cryptocurrency, options trading, and financial derivatives, transcends isolated failures, representing the potential for a cascading collapse across interconnected markets.
Derivative Contract
Contract ⎊ A derivative contract, within the cryptocurrency ecosystem, represents an agreement between two or more parties whose value is derived from an underlying asset, index, or benchmark—often a cryptocurrency or a basket of cryptocurrencies.
Smart Contract
Function ⎊ A smart contract is a self-executing agreement where the terms between parties are directly written into lines of code, stored and run on a blockchain.
Price Discovery
Price ⎊ The convergence of market forces, particularly supply and demand, establishes the equilibrium value of an asset, a process fundamentally reliant on the dissemination and interpretation of information.