An option is a financial contract that provides the customer with protection from adverse pool price movements over an agreed period. The customer has the option to benefit from favourable price moves. Option hedging strategies with more flexibility are available through the following variations. Cap options are bilateral contracts that place a ceiling on the future pool price.
Settlement occurs only if pool prices are above the strike price for the settlement period.
In this event Macquarie Generation pays a compensating amount representing the difference. Floor options limit the seller's exposure to a specified minimum pool price level. Collar options have a simultaneous cap and floor. Swaptions are an option over a swap.