# Option Settlement

When an option expires, the moneyness of an option is calculated to determine if settlement must be paid from option writers to buyers. Since options are only executed if beneficial to the buyer, only In The Money ("ITM")options require settlement calculation.

## TL;DR

• Option settlement is only calculated if ITM at settlement
• ITM if:
• Settlement is calculated:
• Call Option: Options Held * (Settlement Price - Strike Price)
• Put Option: Options Held * (Strike Price - Settlement Price)
Settlement Price
Strike Price
Option Type:Moneyness
Settlement
$1,800$1,600
Call: ITM Put: OTM
Call: 200 (1,800-1,600) Put: none
$1,800$1,800
Call: ATM Put: ATM
Call: none Put: none
$1,800$2,000
Call: OTM Put: ITM
Call: none Put: 200 (2,000-1,800)

## Moneyness

Moneyness refers to an option's intrinsic value, which is simply the comparison between its strike price and its spot price if it were to be executed immediately.
For the purpose of European-style options like Dopex SSOVs, moneyness at settlement is the relevant factor for determining option payouts.

### Out of The Money (OTM)

An option is OTM if the settlement price differs from the strike price and there is no value to be exchanged if settlement were to occur immediately.
A call option is OTM if the spot price is lesser than the strike price. A put option is OTM if the spot price is greater than the strike price.

### In The Money (ITM)

An option is ITM if the settlement price differs from the strike price and there is value to be exchanged if settlement were to occur immediately.
A call option is ITM if the spot price is greater than the strike price. A put option is ITM if the spot price is lesser than the strike price.
A an $ETH call option with a strike price of$1,600 would be ITM if the spot price is $1,800 ($1,800 > $1,600 i.e. ITM). A an$ETH call option with a strike price of $1,600 would be ITM if the spot price is$1,800 ($1,800 >$1,600 i.e. ITM).

## Settlement Calculations

Since Dopex option contracts are only executed if settlement needs to be paid, settlement calculations only occur for ITM options. Settlement is calculated using the following formulae:
$CallSettlement=n(S-K)$
$PutSettlement=n(K-S)$
Where:
n = number of options held
S = spot price at settlement
K = strike price
Example Calculation - ITM Call
A user holds 10 $ETH call options with a strike price of$1,600. The spot price at settlement is $1,800 which means the option is ITM (1,800 > 1,600). Settlement paid to the option holder can be calculated as follows: CallSettlement = 10(1,800 - 1,600) = 2,000 Thus, the option holder receives$2,000 at settlement while writers have their collateral slashed by the same amount.
Example Calculation - ITM Put

#### Put Option

A user holds 10 $ETH put options with a strike price of$2,000. The spot price at settlement is $1,800 which means the option is ITM (1,800 < 2,000). Settlement paid to the option holder can be calculated as follows: PutSettlement = 10(2,000 - 1,800) = 2,000 Thus, the option holder receives$2,000 at settlement while writers have their collateral slashed by the same amount.
Since option writers pay option buyers settlement, the settlement earned by an option buyer is equal to the collateral lost by the option writer. Note that this is exclusive of option premiums paid which should be deducted (added) from settlement earned (paid) when calculating profit or loss for option buyers (writers).