How Does the Expiration Process Work for a Physically-Settled Options Token?

The expiration process is automated by the options token's smart contract. On the expiration date, the contract checks if the option is "in-the-money" (profitable for the holder).

If it is, the holder can execute the exercise function. For physical settlement, the contract automatically facilitates the transfer of the underlying asset (ERC-20 token) from the option writer's collateral to the holder, in exchange for the strike price payment.

If the option expires "out-of-the-money," the contract becomes worthless, and the writer's collateral is released.