Final answer:
The settlement process for exercising an option to buy or sell stock depends on the type of option. For a call option, the settlement involves delivering the stock and paying the agreed price. For a put option, the settlement includes delivering the stock and receiving the agreed price.
Step-by-step explanation:
When you exercise an option to buy or sell stock, the settlement process depends on the type of option. If you exercise a call option and purchase stock, the settlement occurs through the delivery of the stock and payment of the agreed price. On the other hand, if you exercise a put option and sell stock, the settlement involves delivering the stock you own and receiving the agreed price.
For example, let's say you have a call option giving you the right to buy 100 shares of ABC Company stock at $50 per share. If you decide to exercise the option, you would need to provide the necessary funds to purchase the 100 shares. Once the transaction settles, you would become the owner of those 100 shares.