FINRA Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

The correct choice is that upon expiration, all in-the-money S&P 100 index call options are settled by cash delivery. This is because S&P 100 index options are designed to settle based on the underlying index value rather than through the physical delivery of stocks. When an index option is exercised, the settlement is conducted in cash, which simply means that the holder receives a payment based on the difference between the strike price of the option and the final index value, multiplied by the contract multiplier.

This cash-settlement process allows for a straightforward resolution without the logistical complexities of transferring physical stocks. It avoids the necessity of purchasing or selling individual stocks within the index, making it more efficient for traders and investors. The other choices relate to mechanisms that are not applicable to the settlement of S&P 100 index options upon expiration. For example, S&P 100 index stocks and ETFs would involve physical deliveries that do not align with the terms of the index option contracts.