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Xi.J.L INVESTOR

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My understanding is that index options are cash-settled, if expired in the money the option will be automatically exercised and the multiplier * difference between Strike and settlement price should be my profit. Basically, my question is that why isn't that cash-settled part treated as profit?

Below is an example, in the period, I have only got one trade-in below strategy. It buys 2 pieces of identical put option and holds till expiry. And they did expire in the money and got automatically exercised. With a net loss of 320$ which is equal to the premium I paid, my equity increased by 182$, which to me, it means that the cash settlement is not treated as profit. Is this by design? If so, is there any way I can set that cash obtained as profit as well?

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Xi.J.L

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Alexandre Catarino

100.3k Pro ,

Hi Xi.J.L ,

Thank you for your patience.
It's a great question! It's an accounting matter.

We see a negative profit because it refers to the option position since we have paid $320 to buy it, it's a “loss”. On the other hand, the cash settlement added $502 to the CashBook: it paid off the loss and resulted in a Portfolio profit of $182. It's definitely a winning trade. Perhaps we could add this information in the Order Tag.

The “Unrealized Profit” and “Profit” columns only refer to the positions of the securities, not changes in the cash book.

In the Physical Settlement case, we receive the underlying. Its profit will be summed with the loss of the option premium given that both are positions of securities, In this case, we don't see a negative profit for a winning trade.

Xi.J.L

672 Pro ,

Hi Alex,

Thanks a lot for your answer. And I absolutely understand that this is an accounting matter. However, I would really appreciate it if this can be treated as profit from option trading. Or maybe a flag for user to select how they want the profit from cash settlements to be treated as.

One possible easy way to implement I can think is to settle with a dummy bond costs 0 to entry that pays out the cash settlement amount, so that economically we end up with the same amount of cash, and that profit becomes profit from position of security,

Xi.J.L INVESTOR

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