The Life of an Options Cycle

Every cycle on every asset goes through the same stages. Each stage is recorded onchain or reconciled against the broker before the next begins.

1. Lock

   The asset's pool is locked so the collateral stays put while calls are open. Tokens that joined since the last cycle are redeemed with their issuer for the underlying shares, which are delivered to Spout's brokerage account, and a matching receipt token is minted into the pool. New deposits made from here on count toward borrowing straight away but join the pool, and its calls, at the next cycle.

2. Write

   Calls are sold on those shares on US options exchanges, in whole lots of 100 shares.

3. Record

   The premium is recorded onchain against the contract's expiry. From now it accrues to lenders second by second.

4. Run

   The cycle runs to expiry, weekly or every two weeks.

5. Expire

   Each call either expires unused or is exercised.

6. If exercised: buy back

   The called shares are delivered at the strike and their receipt tokens are burned. The strike proceeds buy the shares back in the brokerage account when the market next trades, and matching receipt tokens are minted back into the pool.

7. Settle

   The cycle's cash is delivered into the lending pool in the weekly settlement.

8. Unlock

   The pool unlocks. Once the options clearing house releases the shares, shares needed for withdrawals go back to the issuer, which reissues the tokens to the pool, and the matching receipt tokens are burned. Those tokens can then be withdrawn.

If any stage fails to reconcile, for example a fill that does not match the records, the cycle halts and is resolved by a person. It does not move on with numbers it cannot confirm.

What borrowers and lenders see at each stage