Carbon’s Coronavirus Plunge in Europe Stoked by Options Trade
- Allowances dropped through strike prices ahead of expiry date
- U.K. carbon-permit auction revenue plunged 31% to 92m euros
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One of the biggest selloffs in the history of Europe’s carbon emissions market stoked record trading in futures and put options as the economic impact of the coronavirus worsened.
As futures crashed through once-remote option strike prices, investors who’d previously sold puts needed to lay off the risk by selling futures. As prices kept falling, managing the hedge would typically involve selling more futures, and steepening what turned out to be the biggest three-day rout in the market for seven years.