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

1. Solana
2. Anchor
3. NodeJs
4. Seahorse

Steps to run

1. Clone this repo.
2. Go into the project's directory
3. execute seahorse build command on terminal