Journal of Energy Markets

Risk.net

Covered option strategies in Nordic electricity markets

Antti Klemola and Jukka Sihvonen

  • Long forward, covered call and protective put strategies in the Nordic electricity markets are compared.
  • The results show large and systematic differences between the strategies.
  • On risk-adjusted basis, the protective put outperforms both the long forward and the covered call.
  • The (near) at-the-money protective put strategies seem to be the best choices.

ABSTRACT

We test the performance of popular option strategies in the Nordic power derivative market using twelve years of data. We find that protective put strategies outperform long forward and covered call strategies on a risk-adjusted basis, because the payoff function of the protective put seems a good fit to the market dynamics in both good and bad times. Detailed analysis reveals differences across moneyness levels and holding periods that can be further exploited. Different Delta levels of the analyzed strategies allow for flexible hedging solutions.

 

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: