European commodity option on a Future
Value an OTC call or put whose terminal payoff depends on the exact settlement of one selected listed Future.
How it works
A call benefits from a reference above the strike; a put benefits from a reference below it. This is an OTC contract using a listed Future as its reference, with freely entered commodity quantity. It is distinct from holding the exchange's standardized option contract.
Key contract terms
- Long or short position, call or put
- Exact underlying Future and quantity in its commodity unit
- Positive strike and option expiry no later than Future expiry
- Currency inherited from the reference and its fixing calendar
- Optional initial premium, recorded separately from option value
Payoff: the contractual result
A long call pays quantity × max(settlement − strike, 0); a long put uses max(strike − settlement, 0). Short positions reverse the sign. Before expiry, Black-76 values the option using the Future price, discounting and available listed-option implied volatility.
A simple example
A long call on 100 units has a EUR 200 strike and EUR 215 final settlement: its payoff is EUR 1,500. A separately paid EUR 300 initial premium leaves EUR 1,200 total P&L. The corresponding short position reverses both payoff and premium signs.
Illustrative amounts exclude fees and currency conversion. A payoff is distinct from the instrument's value before maturity.
Lifecycle
- Contract created
- Option remains open
- Exact expiry settlement
- Final result once data is confirmed
- Create the OTC call or put on one selected future, with quantity, strike, expiry and any premium.
- The option remains open until expiry. It has no early-exercise workflow and no successive partial exercises.
- At expiry, the exact underlying settlement determines the payoff. When permitted because that observation is missing, an authorized user can record a contract-specific expiry fixing, then correct or cancel it with an audit history.
- This fixing supplies the price for final valuation of the whole contract. It does not exercise a listed option or create a futures position; finalization requires the usable terminal observation.
Using this instrument in OTCValue
Volatility may be interpolated or use a disclosed expiry proxy. Missing required data can prevent valuation. After expiry, an auditable contract-only manual settlement is available when the exact official observation is missing. Finalization neither creates a listed Future trade nor confirms that cash was paid.