‘Option’ is a contract that gives the owner the right, but not the obligation, to buy (call) or sell (put) a specific financial instrument or commodity at a predetermined price, strike or exercise price, at or up to a certain future date or exercise date.
The above definition of the option contract is stipulated in the Annex III to Commission Delegated Regulation (EU) 2017/583 of 14 July 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments with regard to regulatory technical standards on transparency requirements for trading venues and investment firms in respect of bonds, structured finance products, emission allowances and derivatives (RTS 2).
As regards the the EU electricty market options can be traded, for example, at the EEX platform.
ESMA’s Opinion of 23 May 2019 on position limits on EEX French Power Base contracts (ESMA70-155-2941) indicates the EEX offers trading in options on the French Base Future (month, quarter, year).
With respect to options on the French Power Base Future, at maximum, the following maturities can be traded:
- the next 5 delivery months,
- the next 2 delivery quarters,
- the next 2 delivery years.
Regardless of the different maturities, the corresponding futures position of the underlying asset is booked upon exercising of the option.
The liquidity of electricity options is still limited (ENTSO-E policy paper of December 2022 on the EU's Electricity Forward Markets).
Both EUA-futures and options are traded on ICE Endex. The ratio between EUA futures and EUA options traded at ICE Endex has been stable at circa 2.5, with futures being the leading product ICE Endex is offering. EUA options are mostly traded in block trades, whereas for EUA futures, more than 80% is traded on screen (ESMA Final Report of 28 March 2022, Emission allowances and associated derivatives, ESMA70-445-38, p. 30).
Documentation
Links
Index option (REMIT definitions)
Financial Transmission Rights Option