SIE (Securities Industry Essentials) Practice Exam

Upon expiration, all in-the-money S&P 100 Index call options are settled by the delivery of:

1. Cash

2. Equity Shares

3. Bond Certificates

4. Physical Commodities

The correct answer is: Cash

When S&P 100 Index call options expire in the money, they are settled in cash rather than through the delivery of shares of stock, bonds, or physical commodities. This cash settlement mechanism means that the holder of an in-the-money call option will receive a payment based on the difference between the strike price of the option and the current market value of the index at expiration, multiplied by a specific multiplier. This method of settlement is particularly important for index options because they represent a basket of stocks rather than a single equity, making cash settlement more practical and efficient. It eliminates the need to handle large quantities of individual shares and simplifies the transaction process for both the buyer and the seller. Thus, cash settlement aligns well with the nature of index options, as they are designed to reflect the performance of the index as a whole rather than individual company performance.