Option Traders Boost Bets on Carbon Hitting 100 Euros

Carbon permits broke through a fresh record as the options market shows more traders willing to bet on carbon prices almost doubling by the end of the year.

European Union pollution rights have climbed about 60% this year, putting them among the best-performing commodity futures markets. Even after such hefty gains, some of the biggest options positions are for bets that carbon permits will pass 60 euros ($73), or about 15% above current rates, and 100 euros by the end of the year.

Option Traders Boost Bets on Carbon Hitting 100 Euros

The market action is a sign that the carbon price is being driven by financial players, rather than the companies required to hold the permits under the EU’s Emissions Trading System rules, according to Ken Schneider, president of Grey Epoch LLC, an options market maker in the EU carbon market.

“A huge portion of this rally is driven by speculators who do not need to be compliant for the ETS,” Schneider said. “Most have a pie-in-the-sky view of carbon so buying calls is the thing to do in their eyes.”

Investors have flocked to the market as Europe’s plans to toughen its greenhouse-gas reduction target is seen spurring demand for the bloc’s emission rights.

As carbon surges through new records, there’s little indication the EU will intervene to stop the rally. Last week, the EU’s climate chief Frans Timmermans said the price needed to be much higher to achieve the bloc’s climate goals.

Carbon gained as much as 4.6% Monday to reach 52.77 euros per metric ton on ICE Futures Europe.

©2021 Bloomberg L.P.

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