Gas – Time Spread

Short description

Hedge gas storage capacity and lock in a nice margin.

Capacity

You act in the role of a gas trader.
You act in the capacity of aggressor.

Tasks

Your task is to analyse the forward curve and identify the time spread for different periods.
Identify whether the market is in ‘contango’ or ‘backwardation’.
In case of a steep contango, hedge (gasoline) storage capacity and lock in a nice margin (by selling the time spread; meaning, you simultaneoulsy buy and sell a term contract, whereby the contract you sell short has a longer time-to-maturity). Watch the value of this time spread to develop. Has your timing been ideal? Could you have improved your performance?

Objectives

The aim of this simulation is manifold, namely to understand the pricing of a time spread, to understand the volatility of the time spread and to understand the opportunity and risk that is related to those aspects.
The objective of this simulation is also to master the concept of asset-backed trading; in this case, hedging a physical asset, namely storage capacity. After all, by selling the time spread (setup a long position in one term contract while simultaneously seting up a short position in a further out term contract) you can secure the future margin.

Conclusion

At the end of the simulation, analyse your performance. See what you have done and when you have done this and whether it could have been optimised. This way, you learn and optimise your competences.

Financials

Your working capital at the start is 100.00.
Initial margin per contract is set at 1.00.
Exchange fee and clearing fee per traded contract is set at 0.01.
Position limit per contract: 10.

 

Our Labels

Entrima and Market Abuse Centre (MAC) are the two labels we operate to provide learning services for professionals in the commodity & energy markets.
 
 


Content & Context

Entrima’s mission is to transfer knowledge regarding the business, controls & operations of parties in (or relating to) the wholesale markets.

www.entrima.org


Conduct & Culture

MAC’s mission is to facilitate the prevention & detection of misconduct and to foster proper behaviour in organisations. This is achieved via training, periodic updates and increased awareness.

www.marketabusecentre.com