Create an Options Contract

This activity describes creating an options contract via the Hedging Explorer. Most steps are also applicable when creating options contracts in other screens, such as a Despatch Order or Commodity Exposure report.

This activity presumes that a market commodity with the Options contract type exists. See Commodities, Markets and Market Commodities.

Security Note: You need the Allow the user to maintain hedge actions security right in the Accounting user group security rights group for this activity.

Activity Steps

  1. Open the Hedging Explorer.
  2. Select the Hedge Actions tab.
  3. Right-click in the Hedge Actions field group and select New » Hedge Action from the menu.

    The menu displays applicable market commodities, each with its associated market.

  4. Select the market commodity for which to create the hedge position.

    The New Hedge Action screen displays.

  5. Update the Hedge Date if required. If creating a hedge position for a despatch order QP override, the default date is the spot pricing date. Otherwise, the default date is the first day of the current month.
  6. Update the Option Type if required. Select from Call and Put. Default: As specified for the market commodity.
  7. Update the Transaction Type if required. Whether the hedge position is being bought or sold in the marketplace. Select from Buy and Sell. Default: As specified for the market commodity.
  8. Update the Maturity Date if required. This date will be the maturity date of the underlying futures contract, to which the options contract will be converted if executed. The Maturity Date Scope in the market commodity configuration determines whether a day can be entered for the date, or just a month and year. If only a month and year is entered, the maturity date is the last business day of the month.
  9. Enter the Strike Price. The strike price is the settlement Exercise Price for options contracts. If hedging a quotation pricing (QP) override in a despatch order, the default price is the price value of the QP. Fixed price charges are not included.
  10. Select the Declaration Date by which the options contract must be executed or withdrawn unless the options contract is left to expire. Must be a future date that is before the maturity date.
  11. Select the Settlement Method to determine the quotation period of the options contract. Select from the settlement methods defined in the Market/Commodity Editor.
  12. If the settlement method has a quotation period that is Fixed, enter the Fixed QP Start Date and Fixed QP End Date.
  13. Select an Owner Organisation. Select from the organisations and companies defined on the Organisations panel of the Solution Explorer. Default for hedge positions with a despatch order or quota allocation: the buyer of the sales contract or the seller of the purchase contract.
  14. Select a District. Select from the districts defined on the Organisations panel of the Solution Explorer. Default for hedge positions with a despatch order or quota allocation: the district of the sales or purchase contract.
  15. Select an Action Classification if required. Select from the Hedge Action Classification list items defined in the List Editor. Default: As specified for the market commodity.
  16. Select a Broker if required. Select from the organisations and companies defined on the Organisations panel of the Solution Explorer and that have the Organisation Role of Brokers. Default: As specified for the market commodity.
  17. Enter the Premium. The quoted premium for an options contract in the specified Premium Currency per market commodity contract and per Premium UOM. For example, if the premium is quoted as 3 USD per troy ounce for silver, and the market contract quantity for the commodity is 100 troy ounces, and an options contract is created for 4 contracts, the total premium paid is 1,200 USD. The total premium is paid even if the options contract is withdrawn. When MineMarket calculates the net margin price for the options contract, the premium is added. To have the premium subtracted, enter a negative number. See Margin Price Calculation.
  18. Enter the Number Of Contracts as a whole number.

    MineMarket calculates the Quantity as the Number Of Contracts multiplied by the Market Contract Quantity of the market commodity.

    In the Hedge Actions table, Number Of Contracts and Quantity display as positive numbers for bought call option contracts or sold put option contracts; and negative for sold call option contracts or bought put option contracts.

  19. Click Create.

    The New Hedge Action screen closes.

    A message displays the status of the hedge position creation.

    For an options contract, a single row displays in the Hedge Actions table. This row must describe two prices: one that will be the settlement Exercise Price, and one that will be the settlement Market Price.

  20. For the exercise price configuration, update the following fields as required.
  21. For the market price configuration, update the Price Series if required. The market price is the average of the prices in the price series over the quotation period of the options contract. Select from the price series defined in the Pricing Editor that have a matching Material Type, Product or Analyte Definition defined for the commodity. Default: As specified for the market commodity.
  22. Complete the remaining fields as required.
    • Name
    • Broker Reference—External reference name or number of the hedge position, as stored in the broker's system.
    • Broker Fee—Amount charged by the broker, in the nominated currency. The fee is considered to be a flat fee for the whole hedge position. The broker fee is included in valuations and the settlement for the hedge position. For options contracts, the broker fee is paid even if the options contract is withdrawn.
    • Broker Fee Currency
    • Premium Currency
    • Premium UOM
    • Accounting Group—Select from the accounting groups defined on the Chart Of Accounts screen.
  23. Click Save.