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Carbon Options Trading May Jump on Price Protection, Orbeo Says
2010-08-06 11:45:21.182 GMT
By Mathew Carr
Aug. 6 (Bloomberg) -- The volume of options traded in the
European Union carbon allowance market may rebound later this
year as utilities seek protection from price increases, analysts
at Orbeo said.
EU permits may surge 33 percent this year to 19 euros ($25)
a metric ton from 14.30 euros, said Emmanuel Fages and Carine
Hemery, Paris-based analysts with Orbeo, the carbon-trading
venture of Societe Generale SA and Rhodia SA. The gain will
boost volatility and trigger "a rush back to the option
market," they said today in an e-mailed research note.
The European Commission, regulator of the market, is
seeking higher prices after the recession crimped demand.
Utilities will probably buy allowances to hedge forward sales of
power, Orbeo said.
"Utilities could use options to act fast in order to hedge
against a price rise as observed in April," when prices rose to
16 euros a ton from 13 euros, Orbeo said. Utilities with
shortages can buy at-the-money call options and take advantage
of the "low implied volatility level."
On Aug. 5, a call option at a strike of 14.34 euros cost a
premium of 1.17 euros a ton, according to the report. "If the
price increases strongly, they will be sure to secure December
2010 EU allowances at 15.53 euros -- the strike plus premium."
The volume of allowance options traded dropped to 60
million tons in June from a record 112 million in April, partly
because of doubts about the European economy, Orbeo said.
For Related News and Information:
Emission market news NI ENVMARKET <GO>
Today's top energy stories ETOP <GO>
European power-markets home page EPWR <GO>
--Editors: Jonas Bergman
To contact the reporter on this story:
Mathew Carr in London at +44-20-7073-3531 or
m.carr@bloomberg.net
To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or sev@bloomberg.net
