Settlement & Expiry

After a position’s expiry timestamp passes, it enters the post-expiry phase where it must be either settled (if in-the-money) or expired (if out-of-the-money). Both actions are permissionless and executed by keepers who receive a fee for their service.

Post-Expiry Timeline

Position Created ─────── Expiry (08:00 UTC) ─── +24h Settlement Window ───────>
                              │                          │
                              │  settle() available      │  expirePosition()
                              │  (ITM only, oracle       │  available (OTM only,
                              │   price required)        │   oracle price required)
                              │                          │

• At expiry: The position becomes eligible for settlement if the oracle has published a price and the option is ITM.
• After settlement window (expiry + 24 hours): OTM positions can be expired, returning collateral to the seller.

Settlement (ITM Positions)

The settle(positionId) function handles in-the-money physical delivery. Anyone can call it (keeper model).

Prerequisites

1. Position state must be Active.
2. block.timestamp >= pos.expiry (expiry has passed).
3. Oracle has a published settlement price for the underlying/expiry pair.
4. The option is ITM:
   • Covered Call: settlement price > strike (S > K)
   • Cash-Secured Put: settlement price < strike (S < K)

Covered Call Settlement

When a covered call is settled ITM:

1. Buyer delivers stablecoin: callSettlementCost(strike, quantity, uDec, cDec) worth of collateral token, transferred from buyer to the contract.
2. Seller receives stablecoin: The gross stablecoin amount minus the keeper fee.
3. Buyer receives underlying: The full collateralLocked amount of wHYPE from the contract.
4. Keeper receives fee: Deducted from the stablecoin payment before it reaches the seller.

Cash-Secured Put Settlement

When a CSP is settled ITM:

1. Buyer delivers underlying: quantity worth of wHYPE, transferred from buyer directly to seller.
2. Buyer receives stablecoin: The locked collateral minus the keeper fee.
3. Keeper receives fee: Deducted from the locked collateral before it reaches the buyer.

State Transition

After settlement:

• Position state changes to Settled.
• The ERC-721 NFT is burned.
• A PositionSettled event is emitted with the settlement price, amounts transferred, and settler address.

Expiry (OTM Positions)

The expirePosition(positionId) function releases collateral for positions that expired out-of-the-money.

Prerequisites

1. Position state must be Active.
2. block.timestamp > pos.expiry + SETTLEMENT_WINDOW (24-hour window has closed).
3. Oracle has a published settlement price.
4. The option is OTM or ATM:
   • Covered Call: settlement price <= strike (S <= K)
   • Cash-Secured Put: settlement price >= strike (S >= K)

Collateral Return

• Covered Call OTM: The locked underlying (wHYPE) is returned to the seller.
• Cash-Secured Put OTM: The locked stablecoin is returned to the seller.

No keeper fee is charged for OTM expiry. The seller already collected the premium at execution time, and the full collateral is returned.

State Transition

After expiry:

• Position state changes to Expired.
• The ERC-721 NFT is burned.
• A PositionExpired event is emitted with the collateral amount returned and the seller address.

Keeper Fee

Keepers who call settle receive a fee as incentive. The fee is computed as:

fee = ceilDiv(notional * keeperBps, 10_000)

Where:

• notional = strike * quantity converted to collateral token units (same formula as putCollateralRequired)
• keeperBps = configurable basis points (default: 10 bps = 0.10%)

The fee is subject to two caps:

1. Max keeper fee per collateral token: A configurable hard cap (e.g., 50 USDC) set by the contract owner via setMaxKeeperFee.
2. Available funds cap: The fee cannot exceed the actual stablecoin available in the settlement flow.

The fee is paid in the position’s collateral token:

• Covered Call: Deducted from the stablecoin payment the buyer delivers.
• Cash-Secured Put: Deducted from the locked stablecoin collateral.

Position State Machine

            execute()
  (none) ──────────────> Active
                            │
                   ┌────────┴────────┐
                   │                 │
              settle()          expirePosition()
              (ITM)               (OTM)
                   │                 │
                   v                 v
               Settled           Expired
                   │                 │
               burn NFT          burn NFT

Each position transitions exactly once from Active to either Settled or Expired. Both terminal states are irreversible, and the NFT is burned in both cases.

Oracle Dependency

Both settle and expirePosition require an oracle price to determine moneyness. If the settlement oracle has not published a price for the given underlying/expiry pair, both functions revert with OraclePriceNotAvailable().

See the Settlement Oracle page for details on how prices are published via the commit-reveal mechanism.