Series 7 practice questioneasyOptions — Options on ETFs
Options on exchange-traded funds (ETFs) are settled by:
- ACash settlement only
- BSettlement through futures contracts
- CDelivery of the underlying index stocks
- DPhysical delivery of the ETF shares✓ Correct answer
Explanation
Why D — Physical delivery of the ETF shares
Unlike index options which are cash-settled, ETF options are settled through physical delivery of the ETF shares. Because ETFs are actual securities that trade on exchanges like stocks, they can be physically delivered just like equity options upon exercise.
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