As a general rule, the floating component of the swap is the property of the consumer of the product concerned or the establishment that is willing to pay a fixed price for the product. The “fixed point” component is generally held by the manufacturer of the product, who agrees to pay a variable interest rate determined by the spot price of the underlying product. Natural gas options are contracts that give the holder the right, but not the obligation, to purchase or sell a certain amount of natural gas (or a natural gas exchange or futures contract) at a certain price within a specified time frame in exchange for a preparatory premium, such as the premium to an insurance policy. Share the options even more, there are call options nd put options. A natural gas call option is a contract that gives the owner the right, but not his obligation to purchase natural gas at a certain price (the strike price) at any given time. A gas option is a contract that gives light to the owner, but not the obligation to sell natural gas at a certain price (the strike price) at any given time. Natural gas options can be options for futures and swaps. Large natural gas consumers will often purchase natural gas call options to ensure their exposure to rising natural gas prices. Similarly, natural gas consumers can use natural gas selling options, often in combination with swaps or futures, to commit to lower natural gas prices. As with swaps, many over-the-counter natural gas options can also be paid for through Clearport. The end result is that the consumer enjoys a guaranteed price for a certain period of time and that the producer is in a secure position to protect him from falling commodity prices over the same period.
As a general rule, products are paid in cash, although physical delivery can be defined in the contract. Now we`re talking about the look of NYMEX-alike, because it`s the most used swap. It is a Henry Hub financial system, and a party buys or sells in the current market what would be the fixed or known price, in other words, no matter what NYMEX currently acts. And then the counterparty buys or sells, so the counterparty will take the opposite position. You buy or sell on the basis of the NYMEX invoice. Well, that`s your slippery price, and it`s unknown at the time of the swap transaction. In other words, the price floats, as we know every day, when NYMEX changes. In this lesson, we will talk about some of the most advanced financial derivatives. Now you will find some fairly detailed notes on the current page of the content of the lessons, so I will make here a summary of these slides. And the first financial derivative we`re going to talk about is a swap.
A fixed date (also known as a futures contract or fixed price) is an agreement between two parties to buy or sell physical natural gas at a certain time at a certain price agreed upon at the time of the implementation of the agreement. A natural gas consumer who buys a fixed date simply agrees to purchase a certain amount of natural gas from his supplier at a fixed price, which will be delivered on a specified date or period, i.e. one year. Because fixed forwards are negotiated without a prescription (OTC), they can be tailored to the needs of the natural gas consumer. A fixed-term contract may include conditions that may require the buyer and/or seller to mortgage for credit-related security purposes, such as the . B an accreditation agreement. In a previous lesson and in the manual, we discussed the fact that physical units that want to protect themselves must occupy a position in the financial market that is the opposite of their physical position. For example, a crude oil producer is “long” the product.
Therefore, to ensure adequate coverage, they must go “briefly” into the financial derivative they choose. In lesson 7, I presented how physical and financial prices interact in a hedge.