Daily commodity option strip
Value a sequence of daily calls or puts on one Future, with equal daily quantities and optional settlement-based barriers.
How it works
The total quantity is split equally across open fixing days. Each day has its own option payoff, so a zero-payoff day does not offset another day's positive payoff. An optional up/down, knock-in/knock-out barrier can apply independently to each fixing or cumulatively after its first touch.
Key contract terms
- Long or short, call or put and total commodity quantity
- One exact listed Future and positive strike
- Fixing start and end dates, no later than Future expiry
- Calendar determining the number of equal daily quantities
- Optional barrier type, positive level and application mode
- Optional initial premium, separate from daily payoffs
Payoff: the contractual result
For long calls, each active day contributes (total quantity ÷ number of fixing days) × max(daily settlement − strike, 0). Puts reverse the price difference; short positions reverse the sign. Sum the daily amounts, then account for the initial premium separately.
A simple example
A long call strip without barriers covers 90 units over three days: 30 units daily. With strike EUR 200 and settlements EUR 190, 210 and 230, payoff is 30 × (0 + 10 + 30) = EUR 1,200. A separate EUR 90 premium leaves EUR 1,110 total P&L; the corresponding short has EUR −1,110.
Illustrative amounts exclude fees and currency conversion. A payoff is distinct from the instrument's value before maturity.
Lifecycle
- Contract created
- Daily price observations
- Progressive realization
- All components finalized
- Create the strip with its fixing calendar, total quantity and any barrier; quantity is divided equally across fixing days.
- On each day, the contractual price observation determines that day's option payoff. These are successive fixings of prices, not user-recorded exercises or instructions to close the whole strip.
- Each exactly determined daily payoff becomes realized. Active future days retain exposure; today's payoff remains estimated until its exact settlement is available.
- A cumulative knock-out barrier can eliminate remaining exposure before the contract is marked fully final. No future position is generated by these observations.
- At the end of the period, finalization requires the observations needed to determine all components. One fixing alone does not close the strip, and a missing required final price keeps finalization pending.
Using this instrument in OTCValue
Past fixing days require exact settlements. Barriers are observed only on fixing settlements, not continuously. Remaining independent legs use analytical valuation; cumulative barriers use simulation. A constant-volatility assumption for remaining legs is disclosed. This is a sum of daily payoffs, not an option on the average price; realized amounts do not track payments.