What is Settlement in option contracts?
As stated earlier, each option contract carries an expiry date beyond which, the contract does not have any value and all contracts have to be settled on the settlement date that may be either the expiry date itself or any day prior to that. On the day of settlement, all open positions (buying or selling of calls and put which are not covered by an opposite transaction) which are in the money are compulsorily settled by the Exchange at the settlement price which is the spot value of the asset in question on the settlement day and subsequently, the profit is handed over to buyers. All contracts at the money or out of the money on the settlement day will be allowed to expire as worthless.
