# Settlement

## Automatic Settlement

By default, all contracts are auto-exercised at maturity if and only if the contract has exercisable intrinsic value. Contracts cannot be exercised early.

All contracts are ‘cash settled’ in the sense that no party has to provide any additional funds during settlement. 

All settlement payouts to holders of contracts are made from locked-up collateral amounts.  

## Settlement Currency

Due to the collateral optimization mechanism, the currency of the locked-up collateral amount can be either the underlying asset or USDC. Thus the payouts during the settlement process could happen in either asset.

However, users will be able to specify their preference settlement currency and will be able to enter into spot transactions to exchange the settlement currency into their preferred currency should they be different. 

An optimal asset auction will be set up right after each expiry auction. 

## **Ithaca Reference Price**

Next auction forward settled on first [focal auction](broken://pages/Z77LIiOOHWwoolouMn9M#focal-auction) on expiry Friday + average of uniswap pool settled 10 mins around that same auction. 

If the next auction forward is more than 0.01% different from the Uniswap volume-weighted average price (VWAP), reference fixing is Uniswap.

***

## Determining Settlement 

If a contract has no exercisable intrinsic value, the Final Settlement Amount is 0.

A contract has exercisable intrinsic value according to the table below. 

| Product Type            | Exercisable Intrinsic Value                                                             |
| ----------------------- | --------------------------------------------------------------------------------------- |
| Vanilla Call Option     | Ithaca Reference Price > Strike                                                         |
| Vanilla Put Option      | Ithaca Reference Price  < Strike                                                        |
| Call Spread Option      | Ithaca Reference Price  > Lower Strike                                                  |
| Put Spread Option       | Ithaca Reference Price  < Upper Strike                                                  |
| Binary Call Option      | Ithaca Reference Price  > Strike                                                        |
| Binary Put Option       | Ithaca Reference Price  ≤ Strike                                                        |
| Up-And-Out Call Option  | <p>Ithaca Reference Price  < Barrier Level & <br>Ithaca Reference Price  ≥ Strike</p>   |
| Up-And-In Call Option   | <p>Ithaca Reference Price  ≥ Barrier Level &</p><p>Ithaca Reference Price  ≥ Strike</p> |
| Down-And-In Put Option  | Ithaca Reference Price  < Barrier Level  & Ithaca Reference Price  ≤ Strike             |
| Down-And-Out Put Option | Ithaca Reference Price  ≥ Barrier Level & Ithaca Reference Price  ≤ Strike Price        |
| Forward Contract        | Ithaca Reference Price  > 0                                                             |

## Calculating the Settlement Amount&#x20;

If a contract has exercisable intrinsic value, the calculation of the Final Settlement Amount follows the below set steps:

### Step 1 - Calculation of the Intrinsic Value

| Product Type            | Intrinsic Value                                                |
| ----------------------- | -------------------------------------------------------------- |
| Vanilla Call Option     | Ithaca Reference Price  minus Strike Price                     |
| Vanilla Put Option      | Strike Price minus Ithaca Reference Price                      |
| Call Spread Option      | Min (Upper Strike, Ithaca Reference Price ) minus Lower Strike |
| Put Spread Option       | Upper Strike minus Max (Lower Strike, Ithaca Reference Price ) |
| Binary Call Option      | 1                                                              |
| Binary Put Option       | 1                                                              |
| Up-And-Out Call Option  | Ithaca Reference Price  minus Strike Price                     |
| Up-And-In Call Option   | Ithaca Reference Price  minus Strike Price                     |
| Down-And-In Put Option  | Strike Price minus Ithaca Reference Price                      |
| Down-And-Out Put Option | Strike Price minus Ithaca Reference Price                      |
| Forward Contract        | Ithaca Reference Price                                         |

### Step 2 – Calculation of the Scaled Intrinsic Value

The Scaled Intrinsic Value is calculated by multiplying the Intrinsic Value with the position size &#x20;


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