Physical Settlement
Physical settlement occurs when exercise and assignment result in delivery or receipt of the underlying asset according to the option contract. Example For a standard physically settled equity call, exercise can result in the holder buying the specified number of shares at the strike price. The assigned call writer takes the corresponding side of that transaction.
Why it matters to you
Physical settlement can create or alter a stock position. A trader who holds an option into expiration needs to understand whether they have sufficient capital and whether they actually want the resulting underlying exposure.