A cap allows you to set a maximum (or strike) price you'll pay on the maturity date for an agreed notional quantity of a commodity, while also allowing you to participate in price falls below the strike price.
A cap is sometimes referred to as a call.
- Assists you in protecting against adverse commodity price movements.
- Allows you the opportunity to benefit from price falls below the fixed (strike) price by transacting at the prevailing market price.
- Provide protection against the commodity price rising.
Points to consider
- A premium is normally paid at the commencement of the option.
- The premium is still payable if the option is not exercised.
Who might need it?
If you’re a consumer with uncertainty about the volume of your physical consumption or you want to manage the risk of a commodity price rise.
You may also be a consumer who’s looking for price protection for a known, upfront cost that allows you to participate in favourable price movements.