How Does an American Option’s Early Exercise Feature Interact with Smart Contract Immutability?
An American option allows exercise at any time up to expiration. The smart contract must be coded to allow the option holder to trigger the exercise function before the contract's expiration time, which is a pre-defined condition.
While the contract's code is immutable, the state (exercised or not) is mutable based on the holder's action. The immutability ensures the rules of early exercise cannot be changed, but the contract must be flexible enough to process the action.
Glossar
Early Exercise Feature
Feature ⎊ The Early Exercise Feature is the defining characteristic of American style options, permitting the holder to execute their contractual right to buy or sell the underlying asset before the official expiration date.
Immutability
Provenance ⎊ Immutability within cryptocurrency, options, and derivatives signifies the unalterable record of transaction history and contract terms, crucial for establishing trust and mitigating counterparty risk.
Early Exercise
Trigger ⎊ Early exercise, within cryptocurrency options and financial derivatives, denotes the right ⎊ but not the obligation ⎊ of the option holder to realize the intrinsic value of the contract prior to its scheduled expiration date.
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.