Commodity options

Commodity call option

For whom it is intended:

• Particularly for legal entities  
  

Definition: 

A commodity call option is a transaction whereby the seller of the option pays (once or periodically) floating amounts in a specified currency calculated from a notional amount in the same currency and from the difference between the floating price and a limit price if that difference is a positive value, i.e., the floating price for the given period is higher than the limit price.

The option’s buyer pays an option premium for this hedge.

This product serves to hedge risks resulting from a rise in the price of the given commodity.

A commodity option is offered only for the purpose of hedging risks resulting from and associated with the client’s business activities.

Advantages of the product:

• The buyer of the option is hedged against a rise in the price of the commodity.
• Flexibility of parameters – can easily be adjusted to the actual needs or use for the commodity

Disadvantages of the product:

• The buyer has no possibility to profit from a drop in the price of the commodity.
• The buyer must pay the option premium.

Variations of the product:

• A commodity collar is a combination of a commodity call option and a  commodity put option. It is usually offered as a zero cost strategy.

Conditions of concluding a transaction:

• Master Agreement for Financial Transactions
• Limit for treasury operations
• Settlement currencies: EUR, USD
• Minimum volume
  
  • Crude oil derivatives – 250 metric tonnes monthl
  • Industrial metals – 125 metric tonnes monthly

For more information, please contact your bank advisor.

Commodity put option

For whom it is intended:

• Particularly for legal entities  
  

Definition: 

A commodity put option is a transaction whereby the seller of the option pays (once or periodically) floating amounts in a specified currency calculated from a notional amount in the same currency and from the difference between the floating price and a limit price if that difference is a negative value, i.e., the floating price for the given period is lower than the limit price.

The option’s buyer pays an option premium for this hedge.

This product serves to hedge risks resulting from a drop in the price of the given commodity.

A commodity option is offered only for the purpose of hedging risks resulting from and associated with the client’s business activities.

Advantages of the product:

• The option’s buyer is hedged against a drop in the commodity’s price.
  Flexibility of parameters – can easily be adjusted to the actual needs or use for the commodity

Disadvantages of the product:

• The buyer has no possibility to profit from a rise in the commodity’s price.
• The buyer must pay the option premium.

Variations of the product:

• A commodity collar is a combination of a commodity call option and a  commodity put option. It is usually offered as a zero cost strategy.

Conditions of concluding a transaction:

• Master Agreement for Financial Transactions
• Limit for treasury operations
• Settlement currencies: EUR, USD
• Minimum volume
  
  • Crude oil derivatives – 250 metric tonnes monthly
  • Industrial metals – 125 metric tonnes monthly

For more information, please contact your bank advisor.