Option properties

Panoptic options have: width, moneyness, type, legs, etc.

LP token as a short option

Creating a put option

Removing K numéraire of liquidity at price K creates a long put option payoff. Adding K numéraire of liquidity at price K creates a short put option payoff.

Let's look at what happens for a long put:

1. Buyer removes K Dai from the Uniswap pool in a range around K, that liquidity is moved to the Panoptic Pool smart contract
2. The Buyer has to reimburse K Dai if the price remains above K. Burning that position results in no net gain/loss
3. The Buyer has to reimburse 1 ETH if the price is below K.
4. Price is below K! The buyer sends 1 ETH at strike K, and they keep K Dai.
5. The buyer has effectively "Sold 1 ETH for K Dai, regardless of the price of ETH"

Creating a call option

Removing 1 asset of liquidity at price K creates a long call option payoff. Adding 1 asset of liquidity at price K creates a short call option payoff.

We can go through a similar exercise and see what happens for a long call:

1. Buyer removes 1 ETH from the Uniswap pool in a range around K, that liquidity is moved to the Panoptic Pool smart contract
2. The Buyer has to reimburse 1 ETH if the price remains below K. Burning that position results in no net gain/loss
3. The Buyer has to reimburse K Dai if the price is above K.
4. Price is above K! The buyer sends K Dai at strike K, and they keep 1 ETH.
5. The buyer has effectively "Purchased 1 ETH for K Dai, regardless of the price of ETH"