How Can a Smart Contract Handle the Exercise of an American-Style Option, Which Can Be Exercised Any Time before Expiration?

A smart contract for an American-style option would include a function that the option holder can call at any time before the expiration date. When this "exercise" function is called, the smart contract would verify that the caller is the legitimate owner of the option and that the contract has not expired.

It would then check the current price of the underlying asset via an oracle, calculate the payoff, and automatically transfer the locked collateral or underlying asset to settle the trade according to the contract's terms.