Parts of a Piggy

Underlying

The underlying is a financial asset (separate from the option itself) to which the SmartPiggy NFT token will refer.

Collateral

Collateral is the type of token that is assigned to the contract and potentially rewarded to the holder. It is also the token for which the contract is sold for during an auction. It is effectively the currency that the contract is denominated in.

In the current implementation, the collateral must be a stable token that is pegged to the denomination of the price feed.

Examples of such tokens would be DAI or USDC.

Lot Size

The lot size is most easily thought of as a "multiplier" on the price of the underlying.

SmartPiggy NFT tokens are limited to a lot size of between 1 and 10.

Strike Price

The strike price is a benchmark price for the underlying which the actual price will be compared to at the time of exercise to determine the value of the option. When the option is exercised, the current price of the underlying will very likely deviate from the strike price. Depending on which direction it deviates in, and the "directionality" of the option itself, the holder of the option may stand to benefit from the exercise.

Max Loss (per lot)

Max loss is the amount of collateral that the contract writer has locked into the contract. This is the maximum that the contract writer may lose and the holder can can gain (per lot).

Expiration Date

The expiration date is the date at which the option may be exercised if the holder chooses to do so. The expiration date is always in the future relative to the time at which the option is written. It is the date on which the strike price and the price of the underlying would be compared to determine the value of the option to the holder at the time of exercise.

Direction of Transaction

Lastly, an option may have one of two "directions," which relate to the "direction" (buy or sell) that the holder of the option will have to transact the underlying with respect to the writer of the option. An option contract where the option holder may purchase shares (at the strike price) from the writer is termed a "call" option – the holder of the option may "call in" the shares from the writer of the option at the specified strike price if they wish to do so. An option where the holder would be able to sell shares at the strike price to the writer at the time of exercise is known as a "put" option – the holder may "put" the shares back on to the proverbial shoulders of the writer.