What Is the Role of an Oracle in a Smart Contract-Based Options Trade?

An oracle is a third-party service that supplies external, real-world data to a smart contract, as blockchains cannot access this data natively. In an options trade, the oracle provides critical information like the underlying asset's price, volatility, or the settlement price at expiration.

This data triggers the contract's execution, determining if the option is in-the-money and facilitating the automatic settlement. Without a reliable oracle, the contract cannot function trustlessly.