Key Takeaways:
- Cash settled options in crypto = quick, liquid, and perfect for speculation
- Physically settled options in crypto = deliver or receive actual crypto assets
- Most traders benefit from the efficiency of cash-based options settlement type
When you trade crypto options, it’s not just about the direction of the market—it’s also about how the trade is settled. The two main types of settlement are cash settled options and physically settled options, and they work very differently.
Knowing which type you’re trading isn’t just a technical detail—it can directly affect your profit, risk, and strategy. This guide breaks down the difference between cash-settled and physically settled option and helps you choose the right type for your trading goals.
Let’s explore how cash-settled options in crypto and physically settled options in crypto differ and what that means for traders like you.
What Are Cash-Settled Options?
Cash settled options are contracts that, upon expiration, are settled in cash (usually stablecoins like USDT or fiat), based on the difference between the strike price and the underlying asset’s final price.
You don’t receive or deliver the actual crypto, just the profit or loss.
If the option is in the money at expiration, you receive the payout in cash. If it’s out of the money, the option expires worthless, and you lose the premium.
Example: You buy a BTC call option with a strike price of $60,000.
At expiry, BTC = $65,000 → You receive $5,000 per contract in USDT (minus fees).
No BTC is transferred—just cash.
Most centralised platforms like Pi42 use cash-settled options in crypto for simplicity and efficiency.
Pros of Cash-Settled Options
- No need to hold the asset (BTC, ETH, etc.)
- Faster and simpler settlement
- No wallet transfers or custodial risks
Cons of Cash-Settled Options
- Cannot directly take delivery of crypto
- Not suitable for traders looking for physical exposure
What Are Physically-Settled Options?
Physically settled options involve the actual transfer of the underlying crypto asset when the contract is exercised.
You either receive or deliver the asset, depending on whether you’re the buyer or seller.
- Buy a call → Receive the underlying asset at strike price if exercised
- Buy a put → Sell the asset at strike price if exercised
Example: You buy a BTC put option with a $60,000 strike.
BTC drops to $55,000 → You exercise the put
You deliver BTC and receive $60,000 worth of USDT
Common Platforms
- CME (for traditional markets)
- Some institutional desks
- Certain on-chain derivatives protocols (experimental)
Pros of Physically-Settled Options
- Receive or deliver actual crypto assets
- Ideal for miners, long-term holders, and institutions
- Useful for managing inventory or large OTC trades
Cons of Physically-Settled Options
- Requires asset custody and wallet infrastructure
- Slower settlement and higher operational complexity
- Less liquid and less beginner-friendly
Difference Between Cash-Settled & Physically-Settled Options
| Feature | Cash-Settled Options | Physically-Settled Options |
|---|---|---|
| Settlement Method | In stablecoins or fiat | In actual crypto assets |
| Requires Holding Crypto | ❌ No | ✅ Yes |
| Common in Crypto | ✅ Yes | ❌ Rare |
| Speed of Settlement | Fast | Slower |
| Ideal For | Speculators, retail traders | Institutions, hedgers |
| Platforms | Deribit, Pi42, OKX | CME, OTC, some DeFi |
Use Cases: When to Use Each Type
When to Use Cash-Settled Options
- You want to speculate on price without owning the asset
- You prefer a clean, cash-based P&L
- You want to hedge portfolio exposure with minimal operational steps
- You’re trading short-term volatility
Tip: If you’re just trading direction (up/down), cash settled options in crypto are ideal.
When to Use Physically-Settled Options
- You’re a miner or institutional trader with crypto inventory
- You want to take delivery or sell crypto at a fixed price
- You’re executing large-scale hedging or structured trades
- You need settlement in crypto options for tax or accounting reasons
Conclusion: Know Your Settlement Style Before You Trade
Understanding whether your crypto option is cash-settled or physically-settled is critical for execution, strategy, and risk management.
👉 Ready to start trading? Explore BTC, ETH, and SOL cash settled options in crypto on Pi42, built for traders who demand speed, security, and flexibility.
Sign up now and trade smarter today.
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