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Natural Gas Futures and Options Education
Natural gas futures and options quick facts:
Natural Gas Futures Market Facts
Did you know that
900 of the next 1000 US power plants will use natural gas
within the next few years? Domestically produced and
readily available to end-users through the existing utility
infrastructure, natural gas has also become increasingly
popular as an alternative transportation fuel.
Natural gas accounts for almost a quarter of United States
energy consumption, and the NYMEX Division
natural gas future
contract is widely used as a national
benchmark price. Roughly 50% of the heating needs for the
United States are supplied by natural gas. The United States
is considered the Saudi Arabia of natural gas because of the
huge supplies trapped in shale deposits and in the Gulf of
Mexico.
The
natural gas futures contract trades in units of 10,000
million British thermal units (mmBtu). The natural gas
futures price is based on delivery at the Henry Hub in
Louisiana, the nexus of 16 intra- and interstate natural gas
pipeline systems that draw supplies from the region's
prolific gas deposits. The pipelines serve markets
throughout the U.S. East Coast, the Gulf Coast, the Midwest,
and up to the Canadian border. Many savvy end users of
natural gas use natural gas futures and natural gas options
to hedge their price risks related to higher prices.
During the September 11 terrorist attacks the NYMEX was
destroyed but within days the
natural gas futures and natural
gas options markets were trading again. This is a testament
to the strength and viability of the energy future markets.
The natural gas futures markets are a perfect example of the
pure bastion of capitalism that the futures markets
represent.
There are many corporate uses for natural gas futures. The
spread between the natural gas
future contract and electricity
future contract– the spark spread – is another natural gas
hedging procedure used to manage natural gas futures price
risk in the power markets and utility plants. Natural gas is
much more clean burning that products created from
crude oil such as
heating oil and
unleaded gas making its use much
better for the environment.
Because of the volatility of
natural gas future prices, a
vigorous basis market has developed in the pricing
relationships between Henry Hub and other important natural
gas market centers in the continental United States and
Canada. The Exchange makes available for trading a series of
basis swap futures contracts that are quoted as price
differentials between approximately 30 natural gas futures
pricing points and Henry Hub. The basis contracts trade in
units of 2,500 mmBtu on the NYMEX ClearPortsm trading
platform. Transactions can also be consummated off-Exchange
and submitted to the Exchange for clearing via the NYMEX
ClearPortsm clearing website as an exchange of natural gas
future contracts for physicals or exchange of futures for
swaps transaction.
The
e-miNYsm natural gas future
contract, designed for investment portfolios, is the
equivalent of 2,500 mmBtu of natural gas, 50% of the size of
a standard natural gas future contract. The natural gas
futures contract is available for trading on the Chicago
Mercantile Exchange (CME) GLOBEX® electronic trading
platform and clears through the New York Mercantile Exchange
clearinghouse
Contract Specifications
Henry Hub Natural Gas
Future and Natural Gas Option Contract
Trading
Unit
Natural Gas Futures: 10,000 million
British thermal units (mmBtu).
Natural Gas options: One NYMEX
Division natural gas future contract.
Price
Quotation
Natural Gas Futures and Options:
Dollars and cents per mmBtu, for example, $2.850 per mmBtu.
Trading
Hours
Natural Gas Futures and Options: Open
outcry trading is conducted from 10:00 A.M. until 2:30 P.M.
After hours natural gas future trading
is conducted via the NYMEX ACCESS® internet-based trading
platform beginning at 3:15 P.M. on Mondays through Thursdays
and concluding at 9:30 A.M. the following day. On Sundays,
the session begins at 7:00 P.M. All times are New York time.
Trading
Months
Natural Gas Futures: 72 consecutive
months commencing with the next calendar month (for example,
on January 2, 2002, trading occurs in all months from
February 2002 through January 2008).
Options: 12 consecutive months, plus
contracts initially listed 15, 18, 21, 24, 27, 30, 33, 36,
39, 42, 45, 48, 51, 54, 57, 60, 63, 66, 69, and 72 months
out on a March, June, September, December cycle.
Minimum
Price Fluctuation
Natural Gas Futures and Options:
$0.001 (0.1¢) per mmBtu ($10.00 per contract) Therefore a $1
move up or down is equal to $10,000 per natural gas futures
contract.
Maximum
Daily Price Fluctuation
Natural Gas Futures: $3.00 per mmBtu
($30,000 per contract) for all months. If any contract is
traded, bid, or offered at the limit for five minutes,
trading is halted for five minutes.
Natural Gas Options: No price limits.
Last
Trading Day
Natural Gas Futures: Trading
terminates three business days prior to the first calendar
day of the delivery month.
Natural Gas options: Trading terminates
at the close of business on the business day immediately
preceding the expiration of the underlying natural gas
futures contract.
Exercise
of Options
By a clearing member to the Exchange
clearinghouse not later than 5:30 P.M. or 45 minutes after
the underlying natural gas future settlement price is
posted, whichever is later, on any day up to and including
the natural gas options expiration.
Option
Strike Prices
Twenty strike prices in increments of
$0.05 (5¢) per mmBtu above and below the at-the-money strike
price in all months, plus an additional 20 strike prices in
increments of $0.05 per mmBtu above the at-the-money price
will be offered in the first three nearby months, and the
next 10 strike prices in increments of $0.25 (25¢) per mmBtu
above the highest and below the lowest existing strike
prices in all months for a total of at least 81 strike
prices in the first three nearby months and a total of at
least 61 strike prices for four months and beyond. The
at-the-money strike price is nearest to the previous day's
close of the underlying natural gas future contract. Strike
price boundaries are adjusted according to natural gas
futures price movements.
Trading
Symbols
Futures: NG
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