> For the complete documentation index, see [llms.txt](https://docs.nondollar.life/autonomint/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.nondollar.life/autonomint/options/payout-caps-explained.md).

# Payout Caps Explained

The single most important design choice in Nondollar options: **in-the-money payouts are capped at 5% of the strike price per contract.** This page explains why, exactly how the math works, and who it's good for.

### The exact rule

At expiry, a call contract pays:

```
payout = min( settlement price − strike , 5% × strike )
```

and zero if settlement is at or below the strike. Puts mirror this on the downside.

Example, strike $3,100 → cap = $155:

| Settlement | Uncapped option pays | Nondollar pays |
| ---------- | -------------------- | -------------- |
| $3,150     | $50                  | $50            |
| $3,255     | $155                 | $155           |
| $3,400     | $300                 | $155           |
| $4,000     | $900                 | $155           |

### Why cap payouts at all?

**For buyers: it's why the premium is cheap.** An uncapped option's price includes the cost of rare, extreme tail outcomes. Cutting the tail off cuts most of the cost while keeping the payout zone where the overwhelming majority of in-the-money expiries actually land. For short-dated options, a settlement more than 5% past your strike is the exception, not the rule — you were paying real money for coverage you'd almost never use.

**For sellers: it makes risk exact.** Every contract's worst case is a known dollar amount the moment it's sold. That lets the protocol enforce full collateralization on-chain — the pool can never sell an option it couldn't afford to pay at maximum — and lets each depositor see a precise worst-case figure instead of "unlimited downside."

**For everyone: no leverage blowups.** Capped, fully-collateralized options need no liquidation engine, no margin calls, no socialized losses. Every payout that can ever be owed is already in the pool.

### Is the cap ever a bad deal?

Yes, and we'd rather tell you than have you find out: if you're specifically hunting explosive moves — buying deep out-of-the-money calls hoping for a 20% overnight repricing — a capped option will pay you $155 on a move worth $900 uncapped. For that strategy, pay up for uncapped optionality elsewhere. For expressing a directional view over days to weeks, the cap costs you little and the premium savings compound trade after trade.