November Webinar Key Takeaways: A Deep Dive Into ETFs & Indices and Cash-Settled Options
These sessions explored index and ETF options, volatility products, and cash settlement mechanics. Both sessions provided practical, foundational knowledge needed to navigate these products, clarifying structural differences that potentially have major implications for risk, assignment, and trading outcomes. They explained how end-of-day values ensure a fair and orderly market and how cash-settled index options reduce the risk of unwanted assignment or losing shares through exercise.
What We Covered:
Structural Differences Between Index Options and Equity/ ETF Options Matter
- Settlement: Index options settle in cash, while equity/ETF options typically settle physically.
- Exercise Style: Index options are commonly European-style (exercise only at expiration), while equity/ETF options are American-style (exercise anytime).
- Timing: Some index contracts have AM settlement, while all ETF options follow PM settlement.
- Deliverables: Index options have no shares delivered—only a cash transfer.
Cash Settlement Preserves the Underlying Portfolio
- At expiration, the intrinsic value—if any—is simply transferred as cash (settling T+1). This makes broad-based index options particularly appealing for:
- Hedging diversified portfolios
- Managing index-level exposure
- Avoiding the operational complexities of physical delivery
- End-of-Day Values Are Calculated, Not Traded
OCC determines the end-of-day theoretical price for all options using a smoothing algorithm, rather than relying on the last trade. These closing marks serve as the basis for:
- Daily P&L
- Margin requirements
- Risk monitoring.
Keep Learning:
Key Moments from Navigating ETFs & Indices: Trading Vehicles for Broad Market ExposureKey Moments from Cash-Settled Options Explained: Mechanics and Strategic Applications
Meet OIC instructors
Ken Keating is a Principal, Investor Education at OCC and is an instructor for The Options Industry Council (OIC). Ken began his 25-year trading career at Group One Trading in 1993 on the floor of the PSE (Pacific Coast Stock Exchange) and later transitioned to the floor of the CBOE (Chicago Board Options Exchange). He has held positions as a floor market maker, floor specialist, risk manager, and off floor prop-trader.
Mark, OIC instructor and Principal, Investor Education at OCC, brings 20+ years of experience with options in the Financial Services industry. Mark began his career in options with Stafford Trading, LLC in 1997 before transitioning to brokerage operations with MF Global in 2000. For more than a decade, Mark was the Lead Broker for his firm in the NDX/RUT trading pit, gaining special insight into customer order flow and trade execution.
Roma Colwell is an Associate Principal, Investor Education at OCC and is an instructor for The Options Industry Council (OIC). Roma has more than 27 years in the securities industry, 18 of which were spent as a floor broker, market maker, specialist and risk manager in both San Francisco and Chicago.