Final settlement is the price at which an expiring futures or options contract is closed out. On index products, it is usually a cash settlement against a reference value set by the exchange. In the US, that value is often a Special Opening Quotation (SOQ), computed from opening prices on expiry day.
How it works
The SOQ of the S&P 500, used for standard monthly SPX options and S&P 500 futures, is built from the opening trade of each component stock on the third Friday. It is not the index level printed at the open: each stock contributes its own first price, whenever that comes. For the VIX, the SOQ is computed from the opening prices of the SPX options that enter the VIX formula, on the Wednesday expiry morning. In Europe, Eurex settles EURO STOXX 50 futures and options on the average of index values between 11:50 and 12:00 CET on expiry day, and VSTOXX futures on the average between 11:30 and 12:00 CET.
Example
Hypothetical: the S&P 500 closes at 5,000 on the Thursday before expiry. The SOQ on Friday morning comes out at 5,040. An AM-settled 5,020 call settles at 20 points, or 20 × $100 = $2,000 per contract. If the index trades back to 5,010 by the afternoon, the settlement does not change.
On the desk
AM-settled options stop trading the day before, so the position carries the overnight gap into the SOQ. Dealers hedging a VIX expiry trade the strip of SPX options at the open on settlement day, and the SOQ can print well away from spot VIX.
Educational definition. Worked examples are hypothetical. Not an offer or a recommendation.