Option structures

Hedging allows combination of the bought and sold options with various decisive rates (Strikes) so that the final profit/loss profile compared to the spot (or forward exchange rate) and the related risk correspond to the requirements of the client. Selecting a suitable combination and strike levels, the overall option premium paid may be decreased or the structure may be built as a zero cost strategy.

Commodity collar

A commodity collar is a transaction in which a client buys an option with the right to buy (or the right to sell) the agreed quantity of a specified commodity for the agreed strike price and, concurrently, sells the bank an option with the right to sell (or the right to buy) the same commodity at another strike price. The strike prices of the two options are normally selected so as to ensure a zero cost hedging structure for the client or so as to ensure that the premium for the option sold compensates the premium for the option bought in full extent.

Product features

  • 100% hedging against unfavourable market development.
  • Option to participate in a favourable fluctuation of the hedged commodity price up to the strike price level of the option sold by the client.
  • Three scenarios may occur at the moment of expiry: the option is exercised by the client, the option is exercised by the bank, or the option is not exercised by any of the parties.
  • Exercise of any of the options only results in a financial settlement, and not the purchase (or sale) of the commodity itself. The amount of settlement is based on the difference between the strike price and the actual price (or fix or an average of fixes) at the moment of expiry of the option.

Product variants

  • Both the options are arranged for the same volume (par).
  • The option sold by the client is arranged for a higher volume (par) which means a better strike price of one of both the options for the client if the zero cost condition is maintained.