Medium term
Trade view / 18 March 2014 at 8:44 GMT

Emissions on the rise, but beware excessive size

Chief Investment Officer / ACIES Asset Management
Price target:
Market price:


The emissions market can be a wild ride. Trading this is not for the faint hearted. It has a history of sudden volatility expansion, large intraday moves and it has no price flux limits. This makes for a market that can be both dangerous and very profitable. It can be a very intersting market to trade, but make sure you never take on excessive position sizes. 

In this relatively new market, we trade emission allowances from National Registries in accordance with the ICE Futures Europe Regulation. You don't really need to understand what that is, any more than you need to be able to operate a harvester to trade corn. It's all maths.

Over the long run, this market has a tendency to move down in price. This is largely due to the term structure itself. This, however, is more relevant for trend following style positions, and this idea is about a counter trend trade. Still, it's woth having a look at the long-term chart to get a feeling for where we are.


Weekly backadjusted emissions futures continuation


Source: CSI Data

The term structure tells you that we're looking at a contango style market, that's getting quite steep on the far right side. Note that there is little to no open interest until the December 2014 contract. The choice here is between trading December 2014 or December 2015. Both are valid targets, but for a short-term long I'd go with the Z4 (December 2014). The shorter-term horizon means you need the higher liquidity and the higher price of the Z5 (December 2015) means that you have a negative bias on that point, which you don't want in this case.

The point value for this market is 1'000 units.

Emissions term structure and open interest

Term structure

Source: Following the Trend  

Management and risk description

Enter a small long position in the December 2014 emissions. The ticker usually CFIZ4. Set the stop level and the two target levels as limit orders from the start. Let the trade ride until the limit orders take it out.


Entry: Current price level is around EUR 6. Buy here.

Stop: Firm stop at EUR 5.44.

Target: Close half the position at 6.59 and the rest at 6.88.

Time horizon: Average holding period for this trading model is two weeks.

Back adjusted emissions futures continuation


Source: CSI Data



Non-independent investment research
This investment research has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Further it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Saxo Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. » Read more


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail