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Carbon Options to Buy at 7 Euros Trade as Price Doubles

Trading in options to buy June European Union carbon permits at 7 euros ($8.84) a metric ton jumped fourfold last week, with the contract’s price more than doubling as the underlying futures rose above its strike level.

Trading volume in calls linked to the June contract increased to 2.2 million tons, from 500,000 tons the week before, data compiled by Bloomberg show. Call options give the buyer the right to purchase at a certain price. Puts give the right to sell.

The price of the 7-euro call option more than doubled to 42 euro cents a ton on June 15 from 20 cents on June 14, the data show. Permits for delivery in June surged 9.6 percent last week to 7.23 euros a ton as EU regulators may favor delaying sales of as many as 1.2 billion tons of carbon allowances from 2013 in a bid to deal with oversupply that has built up in the market, two people with knowledge of the matter said. Prices surged on that news at about 4 p.m. on May 15.

The option to buy at 7 euros has open interest of 4.3 million tons as of June 14, a record for that contract and more than any other June call option. The contract expires on June 20, according to ICE. The June put option at a strike of 5 euros has open interest of 4.5 million tons. Open interest is a measure of trading positions that have not been closed, liquidated or delivered. ICE publishes open interest figures the day after the trading day.

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