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Options that settle based on the opening price of the underlying on expiration day (AM settlement). Used by SPX monthly options and some index products. Last trading day is Thursday, settlement is Friday's open.
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Key takeawayAM settlement means your last chance to trade is Thursday's close. The settlement price is based on Friday's opening rotation — you have overnight gap risk between Thursday close and Friday open.
💡 Why It Matters
AM settlement creates overnight risk between your last trading opportunity (Thursday close) and settlement (Friday open). The opening price can gap significantly, especially around events.
⚙ How It Works
SPX monthly options use AM settlement. Settlement value = the opening price of the index on expiration Friday, calculated from the opening trades of all 500 component stocks. Your last chance to trade is Thursday's close.
📋 Example
SPX iron condor expiring this Friday. Thursday close: SPX at 5800 (between your strikes). Friday opens: SPX gaps to 5750 on overnight news — below your short put. You couldn't exit because your last trading day was Thursday.
⚠ Common Mistakes
Holding AM-settled positions into Thursday close assuming 'it'll be fine.' AM settlement is a coin flip if the index is near your strike. Close AM-settled positions by Wednesday or Thursday morning to avoid the gap.
❓ FAQ
What is AM-Settled Options?
Options that settle based on the opening price of the underlying on expiration day (AM settlement). Used by SPX monthly options and some index products. Last trading day is Thursday, settlement is Friday's open.
Why does AM-Settled Options matter for premium sellers?
AM settlement means your last chance to trade is Thursday's close. The settlement price is based on Friday's opening rotation — you have overnight gap risk between Thursday close and Friday open.
How does AM-Settled Options work?
SPX monthly options use AM settlement. Settlement value = the opening price of the index on expiration Friday, calculated from the opening trades of all 500 component stocks. Your last chance to trade is Thursday's close.
What are common mistakes with AM-Settled Options?
Holding AM-settled positions into Thursday close assuming 'it'll be fine.' AM settlement is a coin flip if the index is near your strike. Close AM-settled positions by Wednesday or Thursday morning to avoid the gap.
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