Cash-settled options protocol written in seahorse lang

What is the options market?

An options market is a derivative market where you trade contracts of underlying assets. options contract allows ( but is not an obligation) trading between two parties to buy and sell underlying assets at a fixed price within a specific period of time.

!ELI5

Alice wants to trade BTC, and the market price of BTC is $25,000.
He can go into the market and looks for an Options market that allows him to trade a BTC contract.
Options market gibs him to right (but not obligation) to SHORT/LONG BTC at a fixed price and in a specified time period.
Now he is bullish and wants to long on BTC.
He buys BTC_CALL_26000_012023 contract. this contract gives him rights to buy BTC at 26,000 within or on the day of expiry, in this case, January 2023.
He buys 1 contract at a premium of $100. The price of premium generally depends on market demand for that specific contract.
There can be two outcomes for this contract within or on the day of expiry.
- Let's say the market price of BTC on that day is $30,000 and he decides to settle the contract. Now he is making lumpsum profit on this trade that is $4,000 ($30,000-$26,000) but net_profit is $3,900 ($4000-$100(premium)).
- or the market price of BTC on that day stays below $26,000. Let's say $23,000. So he is smart and he let the contract expire. The loss is only a premium that is $100.

Explain Contract instruction

init_option
- this instruction is used to create an options market with the following arguments.
- payer: Signer is basically the initializer of the contract.
- market: Empty[OptionMarket] is a PDA which is used to hold market state.
- base_mint: TokenMint is the underlying asset which is being traded.
- collateral_mint: TokenMint the asset used to trade the contracts i.e $USDC.
- option_note_mint: Empty[TokenMint] this is the mint for represents of option's deposit notes.
- vault: Empty[TokenAccount] is PDA account with custody over the collateral tokens.
- strike_price: u64 is the price at which you want to execrise the underlying assets.
- expiry_timestamp: i64 is the expiry timestamp of the contract.
- is_put: bool is a flag representing if the contract is put or call. put mean you are bullish and wants to long the underlying assets. call mean you want to short it.
- lot_size: u64 is the number of contracts you want to buy.
- premium_per_lot: u64 Premium is the price for each contract determined by market demand

buy_option instruction allows users to buy options contract. user needs to specify how many lots they want to buy.
settle_expiry is used to record the market price of the underlying asset at the time of settlement.

redeem is used by the user to settle the contract. It settles trade in cash, in our case that will be the collateral asset ($USDC). The core logic for this ix is

  assert market.expiry_price <= 0, 'Expiry price not found'
  
  if market.is_put == False:
      if market.expiry_price > market.strike_price:
      profit_amount = (market.expiry_price - market.strike_price) * u64(lot_factor)
      print("profit :: ", profit_amount)
      vault.transfer(
          authority= market,
          to = redeemer_account,
          amount=profit_amount,
          signer=["market", base_mint, collateral_mint]
      )
  else:
      if market.expiry_price < market.strike_price:
      profit_amount = (market.strike_price - market.expiry_price) * u64(lot_factor)
      print("profit :: ", profit_amount)
      vault.transfer(
          authority= market,
          to = redeemer_account,
          amount=profit_amount,
          signer=["market", base_mint, collateral_mint]
      )

Prerequisites

Steps to run