SimpleSeller

SimpleSeller is used to calculate and return the price of an option that will be purchased by users. Any vault owner or operator can update the different parameters to change the price of the options of the given vault. Prices are applied as points that make up a pricing surface.

A buyer can select any strike or expiry price and the function will calculate the price to apply based on where it is in relation to the nearest price points. If either strike or expiry is outside of the defined price points for a vault the function will revert.

Fees

By default Options will use the SimpleSeller to return the intrinsic, extrinsic, and vault fees. A vault owner can also implement and apply their own pricing function.

Intrinsic Fee

The intrinsic fee is calculated using the option type, the strike price, the current price, and the option size. Any option out of the money will not have any intrinsic fee as they have no intrinsic value.

The more in the money an option is, the more intrinsic value it has and the bigger the intrinsic fee which is directly proportional and equal to the depth of that option being in-the-money at the time of underwriting.

Extrinsic Fee

The extrinsic fee represents the portion of the option worth that has been assigned by factors other than the underlying asset’s price. The primary factors considered with extrinsic value are the time remaining and the implied volatility.

The grid of price points that make up the price surface are applied by the vault operator and be modified at any time.

Vault Fee

The vault fee is a percentage that the vault owner receives with each purchase.

Utilization Factor

The utilization factor is a fee based on the utilization of the vault. The function uses the current price and period and performs a sequential search to find the first matching period/strike cell in the price point matrix and then returns the fee for that applying a vault utilization factor to it.

This allows the base price surface to be applied and a loading to be applied to ensure that increasing demand is met with increasing price.

Dutch Auction

Vaults can also use a dutch auction mechanism which starts high and progressively reduces back to the base price surface over period.