Physical settlement
At expiry the actual shares are delivered. That is why an assignment in stocks leaves you with a position, not just a loss.
In the chapter
The thing everything else depends on
From the same chapter
- UnderlyingThe asset the contract depends on: a stock, an index, a future. The option does not exist without it.
- Spot priceWhat the underlying costs right now. It is the reference for whether a strike is in or out of the money.
- DividendA payout to shareholders. It drops the share price on the ex-date, so it cheapens calls and richens puts.
- Cash settlementAt expiry no asset changes hands: only the cash difference is paid. Standard for index options.