Options

Updated by Tamasin

Molecule supports both exchange-traded and bilateral/OTC options. Exchange traded options will be configured according to official published product specifications.

For OTC options, your Molecule implementation or support team can configure products according to your specs.

Some of the available configuration options are outlined below.

Flavors

Molecule supports options of various styles:

  1. American options - can be exercised at any time up to its expiration date.
    Example: [G.O] ICE Low Sulphur Gasoil, American-Style Options
  2. European options - can only be exercised at expiration
    Example: [F8] NYMEX EUROPEAN GASOIL OPTION
  3. Asian options - depends on the average price of the underlying asset over a certain period and not the price at a specific time.
    Example: [I.O] ICE BRENT AVERAGE PRICE OPTION
    For Asian options, an averaging period is required
  4. Spread Options
    Example: [DT1] ICE Endex Dutch TTF Natural Gas 1-Month Calendar Spread Option
    Spread can be done between products or calendar periods, for example:
    • CL - BZ for a spread between NYMEX CL and NYMEX BZ, same month
    • CL:1 - CL:2 for a spread between the next-available month for CL, and the CL from the following month

Exercise

Options may exercise in three ways:

  1. Financial Exercise
    Only money exchanges hands at expiry.
    For a long call option, the financial expiry formula would be: max(0, underlying - strike) * quantity.
  2. Exercise Into Underlying Future
    An in-the-money option exercises into one or more futures whose trade prices match the option strike. There are a number of levers on this:
    1. Auto-exercise: at expiry, Molecule determines moneyness, decides whether or not to exercise the option, and then does so.
    2. Manual exercise: the user decides whether or not to exercise on the legs of an in-the-money option.
    3. Abandonable: auto-exercises, but the user can choose to manually not take the futures that an option exercises into.
  3. Physical Exercise
    Delivery of underlying commodity.

Option Premiums

Option premiums are usually realized on the day of execution of the trade (not at exercise date). There can be other schedules for option premium realization, but Molecule doesn't support these.

Option Valuation

Please also see https://help.molecule.io/article/7yoqe3w4co-option-models

Molecule supports loading option prices, calculating option prices based on volatilities, and interpolating linearly between option prices.

Volatilities can be loaded into the system if desired. Or they will be computed by the system if prices are provided. Vols are stored as percentages, to be ready for input into Black-Scholes. Data must be based on absolute strike price, not distance in or out of the money.

Molecule's VaR engine simulates option exercise for full portfolio calculations across all instruments.

Option Greeks

Molecule calculates delta, delta factor, theta, vega and gamma. These come out natively on the valuations endpoint, if include=option is selected.

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