Remember the adage “what you see is you what you get”? We’re here to tell you: that DOES NOT apply to cash-settled indexes. Unlike trading in equity/ETF options, trading cash-settled indexes will never result in the delivery of stock, as cash-settled indexes (as the name suggests) settle in cash. 


To view a Table of Expiration and Settlement of Cash-Settled Indexes then click here.


(To see a table of all the different cash-settled indexes along with each contract spec, click here.)


A. The best way to illustrate what will happen in a portfolio when a cash-settled index option expires in-the-money (ITM) is an example:


Let’s say you hold a monthly SPX option

  • The spread expires completely ITM
  • SPX’s closing print the day before (Thursday) is: 2400


You are holding a short one-lot 2410/2420 call spread in your portfolio; it has generated $3 in premium. You think you’re out-of-the-money and safe, free and clear. But... Friday rolls around, and there is a positive economic event that causes the SPX to rally. 


SPX suddenly gaps up 15 points to 2415, and you decide to close out your 2410/2420 short call spread to cut your losses. When you go to do this, you discover that you can’t, and are confronted with a platform error that reads: “Symbols are invalid.” At first glance, this appears to be a nonsense error, but the piece of information you might be missing is that the last day of trading for SPX monthly options is the day BEFORE expiration or Thursday.  


Now, you might already be pretty unhappy, but unfortunately, there is more to know. If you think that, just because the SPX opened up at 2415, your loss is only $200, think again: 


You might be inclined to think... (2410-2415) x 100 = -$500 + $300 credit received = -$200 loss, but the value of SPX for this calculation is determined by looking up the S&P Index Flex Settlement symbol: SET. The SET value is not the opening print of SPX, but rather a weighted average of opening prices among S&P products that are published sometime after market open and is used as the true value of SPX instead of its opening price. 


For this example, let’s say the SET is published and you discover that its value is 2425. That means your position will have reached MAX Loss. Your short 2410 option will be assigned, and your long 2420 option will be exercised, resulting in an assignment fee of $5 and an exercise fee of $5 (for a total of $10 in fees).  


Since the options are cash-settled, the resulting cash position (in this case a cash outflow) will be reflected in your account the next trading day. 


For this example, the resulting cash position upon expiration is:

A $1500 debit from your account. 


(This is calculated as follows: 

Short 2410 call - 2425 SET value =  -$1500 cash outflow

2425 SET value - Long 2420 call = $500 cash inflow

-$1500 cash outflow + $500 cash inflow = $-1000 total cash movement)


Your call spread reached max loss:

$300 credit received - $1000 cash outflow = -$700 loss plus $10 in losses from two $5 exercise/assignment fees


B. Now, let’s illustrate what will happen in a portfolio when an option on a cash-settled index like the SPX settles out-of-the-money (OTM). Here’s an example:


You are holding a short one-lot 2410/2420 call spread in your portfolio; it has generated $3 in premium. Let’s say the SPX settlement value is published at 2400. Your entire spread is OTM - congratulations, you get to keep the entirety of the credit you received from selling it. If there is no exercise or assignment, there are also no exercise or assignment fees. 


C. Finally, let’s illustrate what will happen in a portfolio when an option on a cash-settled index like the SPX settles in between your strikes. Here’s an example:


You are holding a short one-lot 2410/2420 call spread in your portfolio; it has generated $3 in premium. Let’s say the SPX settlement value is published at 2415. What happens? Your short call is assigned the difference between the settlement value and the short strike. In this case, your short strike is 2410, and the SET is 2415. Your account would end up with a -$500 cash outflow. That is calculated as follows:


2410 short strike - 2415 SET value = -$500 cash outflow. 


Your account would reflect a $500 debit. Since we received a $3.00, or $300, credit on the spread, the total loss would only be -$200 ($300 - $500 = -$200). In addition to this, (though it will not be reflected in your account, as fees are not) you will be charged a $5 assignment fee.