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HMRC internal manual

Stamp Taxes on Shares Manual

Derivatives: introduction to options: cash settlement

The terms of an equity option contract will specify the manner in which the contract will be settled upon the holder exercising the option (STSM112050)

While the terms of an option contract may allow, upon the option being exercised by the holder, settlement in the form of an actual delivery of the underlying security, the majority of exercised options result only in a cash settlement where the open market cash value of the underlying security is netted against the ‘strike’ price (STSM112010) amount and the difference is paid to the option holder.