EU Carbon Seen Falling in June, Sept., Dec. as Options Expire

By Mathew Carr
Carbon allowances may fall as options expire, because a lot of strike prices for call options are in the money and traders may sell on delivery, Louis Redshaw, founder of Redshaw Advisors, said by phone.

  • “A massive” 153m tons of call options are currently in the money in total, including June 2018, Sept. 2018, Dec. 2018,
    March 2019 and Dec. 2019 on ICE Futures Europe: Redshaw in emailed note
  • EEX’s open interest would add ~40% on top
  • Most of this open interest is for December 2018 “so if this is mostly speculative interest — we suspect that it is — the end of the year is set for some fireworks — to the downside in all likelihood”
  • “We can’t rule out further gains due to the market’s strength all year but, with no particular support from the fundamentals, June’s option expiry next week, generous auctions and option hedging risk skewed to the supply side, the outlook for the bulls is decidedly shaky unless a decisive driver from the fundamentals materializes”