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Market specific seasonal trading behavior in NASDAQ OMX electricity options

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  • Nikkinen, Jussi
  • Rothovius, Timo

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.

Suggested Citation

  • Nikkinen, Jussi & Rothovius, Timo, 2019. "Market specific seasonal trading behavior in NASDAQ OMX electricity options," Journal of Commodity Markets, Elsevier, vol. 13(C), pages 16-29.
    • Handle: RePEc:eee:jocoma:v:13:y:2019:i:c:p:16-29
    DOI: 10.1016/j.jcomm.2018.05.002
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    2. Sánchez de la Nieta, Agustín A. & Paterakis, Nikolaos G. & Gibescu, Madeleine, 2020. "Participation of photovoltaic power producers in short-term electricity markets based on rescheduling and risk-hedging mapping," Applied Energy, Elsevier, vol. 266(C).

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    More about this item

    Keywords

    Trading activity; Volume; Seasonality; Electricity; Commodity; Options;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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