Traditionally, December trading in the European carbon market is about the fourth quarterly option expiry of the year, which takes place in the first half and the lack of auctions for the second half of the month. With 29 days remaining until Dec’23 option expiry, market participants are starting to pay more attention to the largest positions.

“In an allowance option, the holder of an options contract has an option to either buy (a call option) or sell (a put option) allowances at the price agreed in the contract”, explains International Swaps and Derivatives Association (ISDA) in a report.

 

Trading data shows holdings of €70 put options to the equivalent of 16,82 million EUAs, by far the largest strike for options maturing in December. Being by far the most popular option, the €70 could be seen as a level of support for Dec ’23 in the run-up to options expiry (13 December).

Source: ICE, chart by EMBA Power

The second largest is at €80 with 13,5 million EUAs, also put options. “In addition to bearishness in the fundamentals and mild winter weather, the pressure could also come from Dec options traders with large positions in €70/€75 puts”, warns Yan Qin, carbon analyst at Refinitiv.

 

Another  major concentration is centered around a strike price of €95 with around 12,1 million EUAs of positions in call options and another 11,4 million EUAs of put options at strike price of €75.