Are VXX Options Cash Settled?
Introduction
The claim in question is whether VXX options are cash settled. This inquiry is significant for traders and investors who need to understand the mechanics of options trading, particularly as it pertains to the VXX, which is an exchange-traded note designed to provide exposure to the S&P 500 VIX Short-Term Futures Index. The nature of settlement—whether cash or physical—can impact trading strategies and risk management.
What We Know
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Definition of Cash Settlement: Cash settlement occurs when, upon expiration of an options contract, the difference between the strike price and the market price of the underlying asset is settled in cash rather than through the delivery of the asset itself 67.
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VXX Options: According to various sources, VXX options are generally described as being physically settled, meaning that they require the delivery of the underlying shares upon exercise 24510. This contrasts with VIX options, which are explicitly cash settled due to the nature of the VIX index not being a deliverable asset 14.
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Expert Opinions: A discussion on Elite Trader suggests that while VIX options are cash settled, VXX options involve physical delivery of the underlying stock 3. This aligns with the information provided by other trading platforms that emphasize the physical settlement aspect of VXX options 25.
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Settlement Mechanics: The settlement value for VXX options is determined by the closing price of VXX on the expiration date, which further supports the notion of physical delivery rather than cash settlement 10.
Analysis
The reliability of the sources varies, and it is essential to critically evaluate them:
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Wikipedia: While generally a good starting point, Wikipedia entries can be edited by anyone and may not always reflect the most current or accurate information. The specific entry on VIX options does not provide a definitive answer regarding VXX options 1.
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TastyLive and IG: Both of these sources provide detailed explanations of options trading and settlement types. TastyLive specifically states that VXX options are settled via an exchange of stock, which is a strong assertion given their focus on trading education 25. However, the potential for bias exists, as these platforms may promote trading strategies that favor their services.
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Elite Trader: This forum discussion presents a community perspective, which can be valuable but may also reflect individual opinions rather than established facts. The assertion that VXX options are physically settled aligns with other sources but should be taken with caution due to the informal nature of the discussion 3.
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Project Finance and Six Figure Investing: These sources provide a comparative analysis of VXX and VIX options, reinforcing the idea that VXX options are not cash settled. However, the credibility of these sources should be assessed based on their expertise in financial markets and options trading 410.
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CBOE and SoFi: These are reputable financial organizations that provide educational content on options trading. Their definitions and explanations of cash versus physical settlement are generally reliable and well-founded 89.
Overall, the consensus among multiple sources indicates that VXX options are physically settled. However, the presence of conflicting information, particularly from less formal sources, highlights the need for further verification.
Conclusion
Verdict: False
The claim that VXX options are cash settled is false. The evidence gathered from multiple reliable sources indicates that VXX options are physically settled, requiring the delivery of the underlying shares upon exercise. This conclusion is supported by expert opinions and the mechanics of settlement as outlined by reputable financial organizations.
However, it is important to acknowledge the limitations of the available evidence. While the majority of sources affirm the physical settlement of VXX options, some less formal discussions may introduce ambiguity. Therefore, while the consensus is clear, the potential for misinformation exists, and traders should remain vigilant.
Readers are encouraged to critically evaluate information and consult multiple sources when making trading decisions, as the landscape of financial instruments can be complex and subject to change.
