An option (specifically an electricity derivative) whose underlying is the price of electricity. Electricity options grant the purchaser the right, but not the obligation, to buy or sell a fixed amount of underlying electricity at a pre-set strike price by expiration date. In addition to the underlying price element, the option contract has other elements such as volume, quality, timing, fuel type, delivery location, and so on. Electricity options have a payoff profile similar to that of regular options on financial and non-financial assets.
Like other basic types of options, electricity options are basically classified as electricity calls or electricity puts.
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