SETTLEMENT OF INDEX OPTIONS BY CASH, NOT BY DELIVERY OF UNDERLYING INDEX

Exercise on most options on stocks settle by delivery of the underlying shares. This means that upon settlement, the writer of a call on GM stock must deliver or sell 100 shares of GM stock. The holder of a put on IBM stock will, upon settlement, deliver or sell 100 shares of IBM stock.

However, when it comes to exercise of index options, such as puts and calls on the S&P 100 Index, settlement of exercise is done solely in cash, and not by delivery of the underlying index. Why? Because it would be nearly impossible to deliver the index.

How exercise of options is settled is included in FINRA's Content Outline for the SIE exam. See 2.1.3 of the Content Outline.

Bob Eder's Study for the Securities Industry Essentials (SIE) Exam closely follows FINRA's SIE Content Outline. It lists Content Outline reference numbers for each major paragraph in the text, and it links each of the questions in the two end-of-text tests to the SIE Content Outline.

Why is this important? Because it assures the student/reader that the text and practice questions in Study for the Securities Industry Essentials (SIE) Exam stick closely to the items listed by FINRA in its Content Outline, thus saving the reader/student from spending useless hours on materials that are neither important nor relevant for the SIE exam.

Here is the link to FINRA's Content Outline for the SIE exam.

Study for the Securities Industry Essentials (SIE) Exam is available from Amazon in both paperback and Kindle e-book versions. 

Here is the link to Bob Eder's book on Amazon.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law in 2001.

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