Flash Exercise

We would like to share a novel Premia feature - Flash Exercising.

Problem Statement: When taking a long position on Calls/Puts the user may not have the necessary tokens to exercise the option outright if in the money.

Example: You purchase 10 WETH put options with a strike of 1500 DAI/ETH, the price has fallen to 1200 DAI/ETH and is considered in the money.
You would like to exercise this option however all of your ETH is being utilized currently. To exercise you will need to provide 10 ETH to Receive 15000 DAI (as all premia options are physically settled).

Traditional Markets solve this a few ways.

A) You sell the option prior to expiration and another party will exercise.
B) Your broker will auto-exercise for you: buy obligation, exercise, settle the option, recoup buying costs, remainder to user.
C) If you have a margin account, your broker can auto-exercise the option and settle the obligation for you, placing a short position on your account and providing you the proceeds of the option, whereas the user can settle the short manually if wanted.

Premia allows for both option A) and B).
However if the token pair is illiquid you may not find a buyer for option A, especially if close to expiration, thus Flash Exercising is introduced.

To flash exercise Premia completes the following steps if executed by the user:

1) Flash Loan against the Premia Collateral Vault for 15000 DAI
2) Buy 10 ETH for Market Price via Dex 12000 DAI
3) Exercise the Option swapping 10 ETH for 15000 DAI
4) Payback the Flash Loan for 15000 DAI
5) Return proceeds back to the user (15000 - 12000 = 3000 DAI Minus Fees)

As you can see in this example the option owner can utilize flash loan functionality by paying gas costs, creating a capital efficient way to exercise.

Note: Tokens at Launch will default to the Sushiswap Router, however any standard Uniswap Router can be utilized in the event there is no liquidity at the given DEX.

Flash loans have two applicable uses, the one stated above that does not have any applicable fees/interest and only exists to be used in conjunction with the exercise function, however a secondary open flash loan function exists where developers can also utilize a flash loan from the Premia Collateral Vaults as long as they pay back the loan + interest in the same transaction.

We invite other developers alike to innovate on this functionality providing other flash loan options when the Premia Vaults may not have the required collateral to settle the Option.

Note: Premia Protocol Fees are taken during the following actions Write/Buy/Sell/Exercise and are dependent on if the wallet is part of the Referral Fee Reduction program as well as the amount of Premia Locked and thus their Tier Level. (More on Tier Levels & Fees in the Future)

All details outlined herein are subject to change prior to launch of the protocol.