Managing Deposits
How Writing Options/Providing Liquidity to Premia works in practice!
For the purposes of this walkthrough the terms Mint & Write are synonymous.
The term Mint is utilized throughout the website.
When a User wants to generate additional income by selling Call or Put options on their tokens they have two options:
- They can deposit tokens and mint the contract outright, then sell on the marketplace. Once a buyer comes and purchases the option, they will receive the premium paid in DAI.
- They can utilize the Mint on Sale function which approves all tokens in your wallet for the contract to spend, then place a Sell Order on the marketplace. When the Sell Order is filled, the Option is then Minted at that time and minting user paid premium in DAI. This allows for users to only pay the Write protocol fees if the Option is in fact sold on the secondary market.
There are now a few scenarios to withdraw your initial collateral, take assignment, withdraw your pro-rata assigned amount, or burn to withdraw.
Example 1: The option expires worthless and I would like to withdraw my initial collateral. User navigates to the Account Page -> Deposits Tab and selects the option in question and withdraws original collateral for unassigned options that have reached expiration.
Example 2: The user that bought the option has exercised said option. The depositing user can navigate to the Account Page -> Deposits Tab and selects the option. If the expiration date is in the future, the user can “take assignment” and assign the exercise to themselves and withdraw the collateral which is no longer the original deposit, but the target token allotment now. For Calls the assigned token will be DAI, for Puts the underlying token. For example user has written 1 WETH/DAI call option for strike 2000 DAI and has been assigned, thus will withdraw 2000 DAI, another example, user has written 1 WETH/DAI put option for strike 1500 DAI and has been assigned, thus will withdraw 1 WETH.
Example 3: Some of the users that have bought the option have exercised, but not all, and no depositing users have self-assigned the option to themselves. In this case after expiration all depositing users will be pro-rata assigned the target tokens. For Example 10 total WETH-DAI • 2021FEB12 • CALL • 1800 DAI options have been minted. 5 were exercised and 5 expired worthless. Thus initial writers/depositors when they go to the Account Page -> Deposits Tab -> Withdraw they will be all be pro rata assigned. That means that for every option written they will receive 0.5 WETH and 900 DAI.
Example 4: User has chosen to Mint to Wallet and Sell the Option, however they cannot find a buyer and want to withdraw their collateral before expiration. Since the user who has minted the option still holds the option contract, they can burn this option to receive all their collateral back (minus initial fees). They will navigate to the Account Page -> Deposits tab -> Burn to complete this action.
Hopefully that clarifies how Deposits work in practice, feel free to come into the Discord to answer any other questions you may have!
Discord: https://discord.gg/6MhRmzmdHN
Website: https://premia.finance/
Twitter: https://twitter.com/PremiaFinance
