What is the cash settlement if a put futures option on 50 units of the underlying asset is exercised?
A. (Current Futures Price – Strike Price) times 50
B. (Strike Price – Current Futures Price) times 50
C. (Most Recent Futures Settlement Price – Strike Price) times 50
D. (Strike Price – Most Recent Futures Settlement Price) times 50
D
The cash payoff is the strike price minus the most recent futures settlement price times the size of the contract. The party exercising also gets a short futures position which brings the value of what is received at the time of exercise equal to strike price minus the current futures price times the size of the contract.
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