Calls, puts and exercise

Calls and puts

• A call is the right to buy the token at the strike. It gains when the token rises above the strike.
• A put is the right to sell the token at the strike. It gains when the token falls below the strike.

The premium is what the buyer pays the writer for that right, once, when the order fills. The buyer never owes more, because the writer has already locked everything the right can demand.

On the Leverage page, buying calls is LONG and buying puts is SHORT, after the view each expresses. Both are buys.

Exercise

Exercise is American-style. You can exercise any time you hold the option, any whole number of lots, one or more. There is no minimum value: a call far in the money exercises however low its strike.

Exercise is a swap of fixed amounts.

• A call: you pay the strike in USDC and receive the tokens.
• A put: you deliver the tokens and receive the strike in USDC.

The program never reads a token price and never decides whether an option is in the money. You can exercise a call when the token is below its strike, but you lose money doing it. Whether to exercise is the holder's call.

Physical settlement

The tokens that change hands are the tokens the writers locked in the exchange's vaults. Nothing is settled in cash against a price.

Exercise on the desk

To exercise you need the other side of the swap, USDC for a call or tokens for a put. The desk does not ask you for it. In one transaction it borrows what the exercise needs, exercises, swaps the proceeds and repays the loan. On a call it pays the strike and sells the tokens it receives. On a put it buys the tokens and delivers them at the strike. You end in one token, USDC unless you choose the token itself.

A position decays until it reads less than one lot. It is then dust: there is nothing left to exercise or sell, and any touch of the series clears it.

What an option is worth

The desk values an option you hold at what you could get for it right now. That is the better of selling it into the bids, less the fee, and exercising it as above, with swap and transfer fees included. With no bid and no way to exercise, it is worth zero. That figure moves with the book and the token price. The exact figure is the preview you see when you close.

Assignment

A holder exercises against the series' writer pool, not against one writer. Every writer in the pool is assigned by the same fraction. See Collateral and the writer pool.