Binary commodity option on a Future
Model a fixed cash amount per commodity unit when a terminal price condition is met, with an optional settlement-observed barrier.
How it works
This OTC cash-or-nothing option references one exact listed Future. Its amount does not grow with the distance beyond the strike. An optional up/down, knock-in/knock-out barrier adds a path condition, observed cumulatively on contractual daily settlements from trade date through expiry.
Key contract terms
- Long or short, call or put, and commodity quantity
- Exact listed Future, currency and inherited calendar
- Positive strike and positive cash payout per unit
- Expiry no later than the underlying Future's expiry
- Optional barrier type and positive level
- Optional initial premium recorded separately
Payoff: the contractual result
For a long position, payoff is quantity × cash payout if the call's settlement ≥ strike or the put's settlement ≤ strike, subject to barrier activation. Equality satisfies either strike condition. Otherwise payoff is zero; a short position reverses the sign.
A simple example
A long call without a barrier covers 100 units, with strike EUR 200 and payout EUR 5 per unit. Settlement at EUR 205 produces EUR 500. A separate EUR 50 premium leaves EUR 450 total P&L; the corresponding short has EUR −450.
Illustrative amounts exclude fees and currency conversion. A payoff is distinct from the instrument's value before maturity.
Lifecycle
- Contract created
- Barrier observations, if applicable
- Exact expiry settlement
- Final result once data is confirmed
- Create the binary option, its fixed amount per unit and any barrier.
- With a barrier, successive daily settlement observations determine whether it has been activated or deactivated. They are price observations, not partial exercises.
- At expiry, test the terminal price against the strike and apply the barrier history. The whole contract has one final binary result, including zero when its conditions are not met.
- An authorized contract-specific expiry fixing can supply a missing terminal settlement and be corrected or cancelled with history. It does not replace missing barrier observations, create a future or by itself validate all finalization conditions.
Using this instrument in OTCValue
Barrier observation is daily and discrete, not intraday. Valuation uses an analytical cash-or-nothing model without a barrier and simulation with a barrier. A contract-only manual expiry fixing cannot fill missing barrier history. Realized payoff and initial premium remain distinct; the application does not execute the cash payment.