How Can a Faulty Oracle Price Feed Lead to an Option Contract Being Exercised Unfairly?

If an oracle reports an artificially high price for the underlying asset, an out-of-the-money call option could be mistakenly reported as in-the-money. This would trigger the smart contract to execute a settlement, forcing the option writer to pay out unfairly.

Conversely, an artificially low price could prevent a legitimate in-the-money option from being exercised, harming the holder.