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PM settlement

Settlement based on the closing price on expiration day, so the contract trades right up to the final bell.

PM settlement is what makes zero-dte and weekly index trading possible. The settlement value is the official close, and the contract trades until that close, so you can always exit rather than gamble on an unseen print.

The trade-off is that the final hour is where gamma is largest. A position that was comfortably out of the money at 3pm can be through the strike at 4pm with no time left to adjust.

Example: an index at 4,995 with 20 minutes left and you are short a 5,000 call for $0.90. A 0.2% drift takes the index to 5,005 and the contract settles at $5.00. The loss is $410 per contract on a position that was out of the money at lunchtime.

Related: am-settlement, zero-dte, exercise-settlement-value, gamma

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

How a call option's delta changes with the underlying priceAn S-shaped curve rising from zero, passing through about a half at the strike, and flattening near one.Delta of a call option1.000.5008090110120Out of the moneyAt the moneyIn the money1.00 means it moves one-for-one with the stockdelta ≈ 0.50 at the strikeStrike 100Underlying price
Delta across the range of prices. Delta says how much a call's price moves for a one-point move in the stock. Far below the strike it is near 0 and the option barely reacts; at the strike it is about 0.50; far above it approaches 1 and tracks the stock.

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