Commodity Swaption
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A commodity swaption is a financial derivative that provides the holder with the right, but not the obligation, to enter into a commodity swap at a predetermined price and date in the future. In a commodity swap, two parties agree to exchange cash flows based on the price of a specific commodity (such as oil, natural gas, or metals) over a set period. The swaption, therefore, grants flexibility to the holder to hedge against price volatility or speculate on price movements without the commitment of a standard swap. It is widely used in energy markets and other commodity sectors for risk management and investment purposes.