Definition
Settlement Price (F&O)
The settlement price is the official closing value used to settle F&O contracts and calculate final profit or loss at expiry.
For daily mark-to-market, futures are settled at the day's closing price; at expiry, the final settlement uses a defined reference — typically the average of the underlying's prices in the last half hour of trading on expiry day for index contracts. This averaging prevents manipulation of the closing value.
Indian index options on Nifty and Bank Nifty are cash-settled against this expiry settlement price, while stock F&O settles physically. Knowing the exact settlement methodology matters near expiry, since the final settlement value — not the last traded price — determines how in-the-money options pay out.
Related terms
- Mark to MarketMark to market (MTM) is the daily settlement of profit or loss on a futures position based on that day's closing price.
- Physical vs Cash SettlementPhysical settlement delivers the actual shares at expiry, while cash settlement just exchanges the profit or loss in money.
- Mark PriceMark price is a fair reference price used to value open positions and calculate margins, avoiding manipulation by stray trades.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.