A three-way option is designed to help you determine your maximum fuel price, while benefiting from a partial decrease in prices.

You and OW Bunker agree on a maximum level (cap1) of future fuel oil. To finance the cap1 premium, OW Bunker and you agree on a minimum level (floor) where prices cannot go below, and a level (cap2) where you will no longer be benefiting from a further price increase.
If the market rises beyond cap2, you will not be covered from the cap2 level and above, and you will not benefit from prices below the floor. All prices are fixed in proportion to the average of the month.

Rewards

• Protection against rising markets
• No upfront premium
• Flexibility in physical supply 

Risks

• Some opportunity cost if market falls
• Basis risk in some cases

Three-Way Option example
In December you decide that a three-way option will suit your needs best for the next 4 months.

OW Bunker and you agree on a maximum level that you are willing to pay (cap1) at $525 and a minimum level (floor) at $518.
The average and a second cap is at $535. The agreement is on 3,000mt per month.
 
In January the average settlement price is $515. You pay OW Bunker $3 x 3,000 = $9,000.

In February the average is $521 which means no settlement.

March average is $527. OW Bunker pays you $2 x 3,000 = $6,000.

April average is $538. OW Bunker pays you $10 x 3,000 = $30,000.

Your total profit is $27,000.





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