The party grants the right to the buyer, and collects the premium. The person has the obligation to sell the Allowances at a predetermined price, at the discretion of the call buyer. This position could be taken by a natural long firm who is satisfied by the strike price, and is using a covered call option premium to maximize the value of their long inventory. Entitles the party to sell Allowances at a predetermined price on the date of expiration. This position could be taken by a natural long to hedge their downside price risk.
Risk is limited to the amount paid for the premium.
Grants the right to the buyer and collects the premium. Conversely, this person has the obligation to buy the Allowances at a predetermined price at the discretion of the put buyer. This position could be taken by a natural short firm who is satisfied by the strike price and is using the put option premium to help reduce his overall Allowance cost. A Collar enables someone to hedge against prices buy buying and selling a call and put option respectively. Strangles - A Strangle is when you buy both a Call Option and Put Option with different strike prices.