The calculation of this future price is based upon how the market prices future deliveries and payments, which is usually a function of the market participants' cost of carry interest rate and the allowance loan rate. Forward settlement transactions allow market participants to lock in future purchases and sales at prices that meet their individual needs, while managing their cash flow requirements. Good investment grade credit is required to secure this type of transaction. Entitles the party to buy Allowances at a predetermined strike price on the expiration date. This position could be taken by natural shorts who need to hedge their price risk in case of rising prices.
Risk is limited to the amount paid for the premium.
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.