Options Overview

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.

Option Types

Molecule supports options of various styles:

  1. American options
    These can be exercised at any time up to its expiration date.
    Example: [G.O] ICE Low Sulphur Gasoil, American-Style Options
  2. European options
    These can only be exercised at expiration
    Example: [F8] NYMEX European Gasoil Option
  3. Asian options
    The settlement price of an Asian option depends on the average price of the underlying asset over an averaging period and not the price at a single specific time.
    Example: [I.O] ICE Brent Average Price Option
  4. Spread Options
    Spread can be configured between products or calendar periods.
    Example: [DT1] ICE Endex Dutch TTF Natural Gas 1-Month Calendar Spread Option

Option Trade Loading

All the Options fields are already on the trade upload template.

In addition to regular trade fields, you will need to include:

  1. Strike (the strike price)
  2. Right (put or call)
  3. Premium (goes in the price field)

Option Exercise

Options may exercise within Molecule in three ways:

  1. Financial Exercise
    Only money exchanges hands at expiry.
    Eg, 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 currently support these.

Option Valuation

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

Molecule supports a variety of option pricing models.

Valuation Inputs

For the inputs, you can either choose to:

  • Load option prices and underlying prices, then system calculates implied volatilities
  • Load volatilities and underlying prices

In either case, Molecule is able to interpolate linearly between strike prices if needed.

See Loading Option Prices and Volatilities for more details.

Options included in VaR

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

Option Greeks on Valuations

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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