Cash settlement:
(1) European option: In European option, the option holder can only exercise the option on the expiration date, but not before the expiration date. On the expiration date, if the option holder chooses to exercise the option, the exchange will calculate the intrinsic value of the option according to the terms of the option contract and transfer the corresponding cash amount from the seller's account to the buyer's account to complete the transaction settlement.
(2) American option: In American option, the option holder can exercise the option at any time before the expiration date. If the holder chooses to exercise the option before the expiration date, the exchange will calculate the intrinsic value of the option according to the terms of the option contract and settle it in cash. If the holder chooses to exercise the option on the expiration date, the exchange will make physical delivery (see below for details).
Physical delivery:
Some option contracts require physical delivery on the due date. Explain that option holders need to fulfill their contractual obligations and actually deliver the underlying assets on the maturity date. For call options, the holder needs to buy the underlying assets; For put options, the holder needs to sell the underlying assets. At the same time, the seller needs to provide the corresponding basic assets according to the contract.
Most option traders prefer to close their positions before the option expires (that is, sell or redeem the option contract in advance), rather than wait until the option expires to settle or deliver. This can avoid unnecessary risks and let investors choose to withdraw from the transaction at the right time.