Strategic Energy Derivatives for Executives

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Commodity Markets, Price Risk & Energy Trading (75 Minutes)

Spot and forward markets The forward physical, futures & OTC markets Defining energy derivatives Dynamic price equilibrium between forward markets Commodity price risk, budgetary risk & margin risk Price hedgers versus margin hedgers How financial markets add value to producers and energy consumers Refiners and processors as hedgers of cross-commodity margin risk Gas-fired merchant electricity plants: price or margin hedgers? The risk profile of hydroelectric and coal-fired generating plants  Trading units & characteristics of wholesale gas & electric power markets Basis traded versus price traded "block" markets Understanding "financially firm" "LD" contracts Disadvantages of point-to-point wholesale energy transactions Why portfolio-to-portfolio transactions evolved Advantages of portfolio-to-portfolio wholesale energy transactions Forward market trading as the buying & selling of firm "promises" Understanding "book-out" & "net-out" virtual transactions Defining brokers, traders, dealers and marketers Understanding the trading/marketing risk spectrum Answering the question, "What is trading?"

Futures Contracts, Basis Risk, & Basis Trading (60 Minutes)

Commodity futures contracts: Definitions and uses Specifications of the NYMEX natural gas contract Specifications of the NYMEX electricity futures contracts Hedging with physical forwards vs. financial hedging techniques Ten different definitions of the term: "Basis" Basis nomenclature & communication issues Basis risk & its impact on futures hedging  ("basis blowout") "Basis Trading":  How it's done / Why it works

Commodity Options, Spark Spreads & Assets As Options (75 Minutes)

The concept of optionality & definitions Call and Put options Different types of option instruments: exchange-traded, OTC & physical Buying versus writing options American, European & Asian options How NYMEX options trade in the pit Intrinsic value, "In-the-money" and other terms The time value of an option and the importance of volatility expectations Calculating price volatility Why the Black-Scholes model gives biased results for energy commodities OTC puts and calls ("Swing Options") "Caps", "Floors" and "Collars" The implications of high energy & electricity price volatilities Transmission assets as options on locational basis Storage assets as options on calendar basis Gas-fired generation as a call option on the spark spread OTC Spark Calls & "virtual" electric generation