Carbon Call Option Volumes Surge as 20-Euro Strike Demanded
Trading volumes in European Union carbon call options surged to the most in more than a year last month, as futures prices sank to record lows. That trend is continuing into the new year as traders eye upside protection.
There were 59.2 million tons of call options traded last month across all futures, compared with 11.4 million tons of puts, according to data emailed by ICE on Jan. 17. A month earlier, calls outweighed puts 48.2 million tons to 41.7 million.
Yesterday, 8.75 million metric tons of call options changed hands for the December carbon contract on ICE Futures Europe, according to exchange data compiled by Bloomberg. That’s 15 percent of last month’s total volume for all futures on the exchange. There were no put options on the December future traded yesterday, according to ICE Futures data.
Emissions are linked to levels of economic activity. European carbon for December has dropped 52 percent in the past year as the region’s debt crisis weakened the economy and supply rose. Prices reached a record 6.38 euros ($8.23) a ton on Jan. 4 and were down 1.6 percent today at 7.20 euros on ICE.
“People may be taking the view that the downside risk is diminishing,” said Brett Genus, a broker at OTC Europe LLP in London. “It would appear from the lack of puts trading that participants are no longer willing to pay up for downside protection, while the persistent volumes of calls that have recently traded could point to an interim base having been established with the recent low at 6.38 euros.”
Call options give the buyer the right to purchase at a set level and protect against a surge. Put options give the right to sell at a certain price, insuring against the risks of a plunge.
Open Interest
The most popular call-option strike price is 20 euros, according to ICE open interest data, a measure of non-closed positions. The open interest is 13.5 million tons, compared with 12 million tons for the 15-euro strike, the next most popular, according to ICE. Interest in the 20-euro strike overtook the 15-euro strike on Jan. 11.
The price of the 20-euro strike is 17 euro cents a ton, after surging 21 percent yesterday. It’s still half that of the 15-euro option, which jumped 26 percent to 34 cents yesterday, ICE data show. The price of a put option at a 4-euro strike was indicated at 47 cents yesterday, down 9.6 percent, ICE data show.
To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net
To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net
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