Tax Facts

7557 / What is a “cash settlement option”?

A cash settlement option is an option that on exercise settles in, or could be settled in, cash or property other than the underlying property.1 For example, an option on a stock index that contemplates that cash, rather than stock, be transferred if the option holder elects to exercise the option is a cash settlement option.

1. IRC § 1234(c)(2)(B).

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