Cash-Based Option

Filed Under:
Dictionary Says

Definition of 'Cash-Based Option'


A type of option which is always settled in cash. Upon exercise, the net value to the involved parties are calculated and a cash payment is made to settle the difference. This option is advantageous for investors who want to capture movements in stock prices only, and not be required to enter a position following the exercise of an option.

Investopedia Says

Investopedia explains 'Cash-Based Option'


For example, let's say you purchase a cash-based call option contract with a strike price of $55. You exercise the option when the underlying stock price reaches $60 per share. Since one contract is for one hundred shares, the net value to you is $500 ( (60-55) x 100 ). In this case, you will receive $500 in cash, instead of being required to purchase 100 shares of stock for $55.

comments powered by Disqus
Hot Definitions
  1. Closed-End Fund

    A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.
  2. Payday Loan

    A type of short-term borrowing where an individual borrows a small amount at a very high rate of interest. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash.
  3. Securitization

    The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors.
  4. Economic Forecasting

    The process of attempting to predict the future condition of the economy. This involves the use of statistical models utilizing variables sometimes called indicators.
  5. Chicago Mercantile Exchange - CME

    The world's second-largest exchange for futures and options on futures and the largest in the U.S. Trading involves mostly futures on interest rates, currency, equities, stock indices and agricultural products.
  6. Private Equity

    Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity.
Trading Center