Education Series on Derivative Contracts
Trading and Settlement:
settlement of option contracts is on the last Thursday of each month
and all open positions on the settlement date will be closed out by
the Exchange at the settlement price(spot value of the asset on the
settlement date) if the contracts are in the money. Option contracts
out of the money or at the money will be allowed to expire because
they are worthless from the point of view of option buyers.
Besides, final settlement of the contracts by the Exchanges
concerned, buying or selling positions of option holders and writers
could be traded on a daily basis and positions could be closed out at
any time by entering into an opposite transaction. For example, a
buying position in a type of contract could be closed out by effecting
a sell and vice versa and profit can be booked without waiting for the
final settlement day. Thus, options are giving profitable trading
opportunities to the participants on a daily basis.