Market specific seasonal trading behavior in NASDAQ OMX electricity options

Jussi Nikkinen and Timo Rothovius

Journal of Commodity Markets, 2019, vol. 13, issue C, 16-29

Abstract: This study examines trading behavior in the NASDAQ OMX Commodities Europe electricity options' financial market using intraday data on individual option transactions. We postulate that the market differs from many other asset markets in that the main reason to trade is to hedge the price and quantity risks encountered in the physical market and because electricity is non-storable. Thus, in contrast to many other, more speculatively oriented markets, we find several disjunctive patterns in the trading of options. First, options on quarterly futures, providing the most flexible tools for hedging, are more heavily traded than options on yearly futures contracts. Second, trading activity is higher in options used to hedge against the coldest (i.e., peak) months. Third, trading activity is not higher prior to the expiry of options, implying that contracts are initiated early and not closed out prior to expiration. Fourth, trading activity does not decrease during the summer months. The results have several theoretical and practical implications.

Keywords: Trading activity; Volume; Seasonality; Electricity; Commodity; Options (search for similar items in EconPapers)
JEL-codes: G10 G12 Q40 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:13:y:2019:i:c:p:16-29

DOI: 10.1016/j.jcomm.2018.05.002

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