Value of Index Option

[PGDIMES]

We know that if one has taken a stock option he has 3 alternatives -

1)Sell at higher price
2) Exercise it
3)Leave it to expire (Worst one)

But what happens to an index option at expiry?

 

[MurAtt]

Settled in CASH wrt settlement price of Index Spot value ...

We know that if one has taken a stock option he has 3 alternatives -

1)Sell at higher price
2) Exercise it
3)Leave it to expire (Worst one) Why worst? It could be in profit and give better returns than highest buyer!!!!

But what happens to an index option at expiry?

 

[PGDIMES]

Now comes the important question:

How would you value an index option at any time wrt the index?