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Broad-based indexes have many different industries represented by their component companies. As you would expect, however, other broad-based indexes are indeed made up of many different stocks. When stock options are exercised, the underlying stock is required to change hands. But index options are settle in cash instead. That would be ridiculous.

The index value is just a gauge to determine how much the option is worth at any given time. As of this writing, all stock options have American-style exercise, meaning they can be exercised at any point before expiration. Most index options, on the other hand, have European-style exercise.

Exercise (options)

As with any other option, you can buy or sell to close your position at any time throughout the life of the contract. The last day to trade stock options is the third Friday of the month, and settlement is determined on Saturday.


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The last day to trade index options is usually the Thursday before the third Friday of the month, followed by determination of the settlement value on Friday. The settlement value is then compared to the strike price of the option to see how much, if any, cash will change hands between the option buyer and seller. Stock options and narrow-based index options stop trading at ET, whereas broad-based indexes stop trading at ET.

If a piece of news came out immediately after the stock market close, it might have a significant impact on the value of stock options and narrow-based index options. However, since there are so many different sectors in broad-based indexes, this is not so much of a concern. Accessed Mar. Personal Finance. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.

Stock Options Settlements - AM Settlements - PM Settlements

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Expiration months include the current month and the following month, plus two additional months drawn from the January, February, or March quarterly cycles.

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Personal Finance Personal Finance Calendar. Partner Links. As with other options contracts, notifications of intent to exercise must be done the day before. Experienced traders have a keen awareness of when the options they have bought or sold will expire. Necessary cookies are absolutely essential for the website to function properly.

Difference 2: Settlement Method

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What about options pinning?

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