How do equity options typically trade?

Equity options typically trade on a T+1 basis, which means that the settlement date for these transactions is one business day after the trade date. When an investor buys or sells an equity option, the transactions are settled the day after the trade is executed. This quick settlement period is particularly advantageous in the context of options trading, as it allows for greater liquidity and faster recalibration of positions in a dynamic market.

Other settlement periods, like T+2 or T+3, are generally associated with different types of securities, such as stocks or bonds, and do not apply to equity options. T+2 is common for stock trades, while T+3 was historically used for other securities before it transitioned to T+2 as a standard. T+4 is not a standard settlement period for any recognized securities transactions. Therefore, recognizing that equity options settle T+1 is crucial for understanding their trading dynamics and managing positions effectively.