How Can a Smart Contract Manage the Margin Requirements for Writing a Covered Call Option?
A smart contract can enforce margin requirements by requiring the option writer to lock the underlying asset (the collateral) within the contract before the call option is issued. This "covered" collateral is held by the contract and can only be accessed by the option holder if they exercise the option, or by the writer if the option expires worthless.
The contract automatically checks and maintains this collateralization level.
Glossar
Smart Contract
Code ⎊ The contract is fundamentally self-executing code deployed on a distributed ledger, embodying the terms of the agreement in an immutable format.
Covered Call
Strategy ⎊ This involves selling a call option on an asset that the investor already owns, thereby generating immediate income against potential appreciation.
Margin Requirements for Writing
Requirement ⎊ Margin Requirements for Writing options represent the minimum collateral that an option seller must post to secure the potential obligation arising from the sold contract.