Commodity Option

Hedge your risks and benefit from opposite price developments

Assistance and proposed strategy by a team of specialists

Choice of several product modifications

Negotiate each transaction with a dealer over the telephone

It represents a right to purchase or sell a defined instrument at agreed prices and at agreed dates
Intended for individuals and legal entities, both domestic and foreign
For this right, the buyer pays an option premium to the seller, normally paid 2 business days from the trade date
Instrument means the exchange of payments related to the agreed fixed commodity price for payments depending on current prices or average prices of reference commodities
Intended for investors who wish to hedge commodity risk arising from potentially adverse price movements of specific commodity and also wish to potentially benefit from the opposite movement
Unilateral transaction – payments on the part of the buyer are limited to the payment of the premium (there is no credit risk for the seller associated with the buyer following the collection of the premium)
Transaction settlement is always financial rather than physical
Clients with slightly worse financial standing may also buy options

Cap

Buyer hedges risk of increasing commodity prices
Option will be exercised if the commodity price / average of reference commodity prices exceeds the agreed cap price on the last day of the reference period

Floor

Buyer hedges risk of declining commodity prices
Option will be exercised if the commodity price / average of reference commodity prices drops below the agreed fixed floor price on the last day of the reference period

Quanto

The underlying commodity is listed in a currency other than the settlement currency

Basket

Deferred price fixing

Fixed price is not known on the day the transaction is negotiated
Fixed price is determined on the basis of daily quoted averages over a specific future period

Settlement

Settlement usually takes place 2 to 5 business days from the end of each reference period, on the basis of a cash settlement price published on days agreed upon transaction negotiation (usually end of each reference period)
Settlement amount for the reference period: PA = NA * max(0, CSP - P), where:

Uvedený příklad je pouze ilustrativní a má za cíl popsat fungování a použití produktu. Nejedná se o minulý ani o očekávaný budoucí vývoj trhu.

Profit or loss from commodity transactions is affected by fluctuations in the prices of the given commodity
Risk associated with purchased options is lower than for sold options
Maximum loss for the option buyer is limited to the paid premium
Risk associated with sold options is much higher – loss for the option seller may significantly exceed the received premium, with the risk being virtually unlimited
Option seller commits to purchase or sell underlying instruments
In case an option is exercised, the option seller is in a situation where the current market price of underlying assets sold by the seller may be significantly higher than the strike price or, conversely, the current market price of underlying assets purchased by the seller may be considerably lower than the strike price (to which the seller committed)
Consult Markets in Financial Instruments Directive
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