Searching for Alpha: Panoptic Protocol

Options are financial instruments that give investors the right to buy or sell an underlying asset at a fixed price on some set date in the future. Despite their prevalence in traditional finance, options have yet to gain significant traction in DeFi (Figure 1). Option contracts can be thought of as similar to limit orders or concentrated LP positions with an additional premium paid for the certainty of execution conditions. Panoptic takes advantage of these properties to bootstrap on-chain options market liquidity. 

The price of an option can be separated into intrinsic and premium values. When an option is in-the-money, it has a non-zero intrinsic value (price > strike for call option, price < strike for put option). The premium components are primarily a function of the expected price movement of the underlying asset over the term of the agreement.