The Settlement Process
24 hours before an option’s expiration, the underlying NFT will automatically be listed for sale on the option's page in Hook's UI. Anyone can submit a bid that is at or above the strike price. Submitting a bid requires the bidder to deposit the ETH in Hook. If someone makes a higher bid, the ETH is refunded back to the bidder's wallet.
For NFT holders, one way to think about writing call options is getting paid to sell your NFT at a later date, but getting to keep it if doesn't meet a reserve price.
In the Money
The option holder earns the spread between the sale price and the strike price.
Hook pays the strike price to the option writer. They miss out on any additional upside.
The option writer can bid on their NFT in the auction. They only have to bid the amount above the strike price because they would have already received the strike price from the settlement action if there was another buyer.
Example: The strike price of an option is 100 ETH. The settlement auction starts and the highest bid is 105 ETH. The option holder decides they want to keep their NFT. They must bid more than 5 ETH to have the highest bid.
Breakeven (At the Money)
The NFT sells in the settlement auction for an amount equal to the premium above the strike price. The option writer and buyer do not profit or lose.
Out of the Money
No one bids in the settlement auction. The NFT will remain in Hook until the option is burned. Afterward, the NFT holder can withdraw the NFT from Hook or create another option.
Updated 3 days ago