LP-0046Finaloptionseuropeanblack-scholessettlementdefi

LP-046: Options Protocol

Abstract

The Lux Options Protocol enables European-style options (exercisable only at expiry) for any oracle-priced asset. Option writers deposit collateral to mint option tokens (ERC-20) representing calls or puts at a specific strike and expiry. Option tokens are tradeable on AMM V3 (LP-041). At expiry, options settle automatically against the K-chain oracle price (LP-038).

Specification

Option Token

Each option series is a unique ERC-20:


OptionSeries {
    underlying  address     // e.g., LUX
    strike      uint256     // strike price in quote asset (e.g., 50 USDC)
    expiry      uint256     // Unix timestamp
    isCall      bool        // true = call, false = put
    collateral  address     // USDC for puts, underlying for calls
}

Option token name: LUX-50C-20261231 (asset-strike-type-expiry).

Writing

Call writer: deposits 1 unit of underlying per option, receives 1 call token
Put writer: deposits strike units of USDC per option, receives 1 put token
Collateral is fully escrowed -- no margin, no liquidation risk for writers

Settlement

At expiry, the oracle price P determines payoff:

Call payoff: max(P - strike, 0) per option
Put payoff: max(strike - P, 0) per option

Settlement is permissionless -- anyone can trigger settlement after expiry by calling settle() which reads the K-chain oracle price.

Trading

Option tokens trade on AMM V3 pools. Market makers provide liquidity at prices reflecting implied volatility. The protocol does not enforce Black-Scholes pricing -- the market discovers the price through trading.

Epoch System

Options are organized into weekly epochs (Friday 08:00 UTC expiry):

New series are created by governance each epoch
Standard strikes: ATM +/- 5%, 10%, 20%, 30%
Standard expiries: 1 week, 2 weeks, 1 month, 3 months

Fee Structure

| Fee | Rate | Recipient |

|---|---|---|

| Minting fee | 0.05% of collateral | Treasury |

| Settlement fee | 0.02% of payoff | Settler (keeper) |

| Trading fee | AMM V3 pool fee | LPs |

Security Considerations

1. Full collateralization: writers cannot be liquidated because options are fully collateralized. This eliminates systemic risk.

2. Oracle at expiry: settlement depends on a single oracle reading at expiry. The protocol uses a 30-minute TWAP to reduce manipulation risk.

3. Expired unsettled options: options not settled within 7 days after expiry can be reclaimed by writers.

Reference

| Resource | Location |

|---|---|

| Options contracts | github.com/luxfi/standard/contracts/options/ |

| Option factory | OptionFactory.sol |

| Settlement engine | SettlementEngine.sol |

Copyright

Licensed under the MIT License.