Core concepts
Five ideas. Everything else in these docs is a consequence of one of them.
1. One option unit is one USDC of collateral
Options here are not priced per contract on some notional. An option unit is defined by the collateral behind it: post 1 USDC and you get 1 unit. Post 500 USDC and you get 500 units.
That means a payoff is always a fraction of the collateral you posted, between 0 and 1 per unit. No position can ever owe more than the USDC sitting in the contract against it, so the protocol has no liquidation machinery, no margin calls and no bad debt. The trade-off is that upside is bounded too — see concept 4.
All amounts are handled to a granularity of one cent (1e4 in USDC's 6-decimal units). Mints, transfers and exercises are all whole multiples of a cent, which means you can never be left holding dust too small to settle.
2. Both legs are separate, tradeable tokens
Minting is a single transaction that produces two ERC-1155 tokens:
- the long leg — the buyer's side, which gains as the option goes in the money
- the short leg — the seller's side, which gains as it goes out of the money
You receive both, and initially you own both sides of your own option, which is a flat position. It becomes a real position when you sell one of them. Sell the short leg and you are long the option; sell the long leg and you are short it.
Minting is how liquidity gets created
There is no pool of underwriters waiting to sell you an option. Every option that exists was minted by someone posting collateral, and every option leg that can be bought was sold by someone who minted it. See Minting options.
3. Strikes and maturities come from a fixed grid
You cannot ask for an arbitrary strike. Each option's parameters are drawn from a grid baked into the contract at deployment:
| Dimension | What's available |
|---|---|
| Strike | 248 values on a roughly geometric ladder (median step ≈ 11%), spanning 0.000001 to 10,000,000 |
| Maturity | 104 consecutive weekly Fridays, currently running to 2028-07-07 |
| Type | Call or Put |
| Kind | European only — exercisable at expiry, not before |
| Direction | Long or short leg |
| Underlying | Any registered Chainlink price feed |
This is a deliberate constraint. Arbitrary strikes would scatter liquidity across a continuum of instruments that each have one trader; a coarse shared grid concentrates it into pools deep enough to trade against. Every combination is addressed by a single 124-bit TokenID that packs all six fields — see TokenID format.
4. Payoffs are fractional, and floored
At expiry the collateral is split between the two legs according to how far the option finished in the money. For a call, the long leg receives
$$\varphi_{call} = \frac{\max(S_T - K, 0) + \delta K}{\max(S_T - K, 0) + K}$$
of the collateral, and the short leg receives \(1 - \varphi_{call}\). Here \(S_T\) is the settlement price, \(K\) the strike, and \(\delta\) the zero shift, fixed at 0.1.
Two properties matter. The first is that the two legs always sum to exactly the collateral — the split redistributes value, it never creates or destroys it. The second is what \(\delta\) does: it guarantees the long leg is worth at least 10% of the collateral and the short leg at most 90%, whatever happens to the underlying.
So an option that expires far out of the money does not become worthless here. It keeps a floor. That is unusual, and it exists for a concrete reason: an asset whose price can reach zero is unsafe to trade on a constant-product AMM, because near zero a tiny absolute price change is an enormous relative one, and an attacker can drain the paired USDC by swapping near-worthless tokens into the pool. The floor removes that region entirely. Payoff & pricing works through the consequences; Dynamic swap fee covers the other half of the defence.
What this means in practice
A long call that finishes out of the money returns 10% of what you paid in collateral terms, rather than zero. In exchange, a long call that finishes deep in the money approaches 100% of collateral rather than growing without bound. The instrument is closer to a bounded spread than to a vanilla option.
5. The contract is the counterparty
When you exercise, you are not paid by the person who took the other side of your trade. You are paid by the SF Options contract, out of the collateral it holds, and your counterparty settles their own leg independently whenever they choose.
This is how a clearing house works, and it has practical consequences:
- Your settlement doesn't depend on anyone else acting. No counterparty can fail you, delay you, or need to be found.
- Legs can be freely traded and split. Option balances are ordinary ERC-1155 balances, so a leg can change hands any number of times, or be divided among many holders, without the contract tracking who faces whom.
- Settlement price is recorded once per maturity, per feed. The first exercise after expiry writes the Chainlink price for that maturity, and every later exercise of that maturity uses the same number. See Exercise & settlement.
Next
With those five in hand, the guides walk through the three things you can actually do: mint, trade, or provide liquidity.