Course 12 of 20 · Natural Gas Desk Academy

Futures, Swaps & Physical Hedging

Stage C, Spread, storage and cash economics. Level 6 of 10.

Selecting, sizing, rolling and unwinding futures and swap hedges against a physical position, and quantifying the residual the hedge leaves behind.

125 chapters · 12 modules · every chapter one 8 to 10 minute explainer · builds on: Course 03, Course 04, Course 09, Course 10

Enrol or enquire See the 125 chapters
How a chapter is sized

One chapter is one idea taken to the point of use

Each chapter is a single self-contained explainer of 8 to 10 narrated minutes, covering one idea to the point where you can use it.

Chapters run in order. Each one assumes only what the chapters before it taught, and capability belonging to a later course is named and deferred rather than half-covered.

Curriculum

12 modules · 125 chapters

Open any module for its full chapter list, in teaching order.

M0 The Exposure a Physical Gas Position Creates Ch 1-12
  1. What a Hedge Decides and What It Leaves Open
  2. The Long Position Inside a Term Purchase
  3. The Short Position Created by a Firm Daily Obligation
  4. Priced and Unpriced Therms, Day by Day
  5. When the Exposure Actually Attaches
  6. Hub Level, Point Differential and Winter Shape
  7. Why Equal Volumes In and Out Are Not Flat
  8. The Exposure Grid: Month Against Delivery Point
  9. Building the Monthly Exposure Row
  10. Reading the Grid Down the Delivery Point Column
  11. What Leaving the Position Open Costs
  12. The Route Through the Hedging Decision
M1 The Linear Instrument Set Ch 13-24
  1. The Exchange-Traded Gas Future
  2. The Fixed-for-Float Gas Swap
  3. The Financial Basis Swap
  4. The Monthly Index Swap
  5. The Daily Index Swap
  6. Exchange Future or Index Swap for a Term Supply Deal
  7. Cleared Trades Against Bilateral Trades
  8. What a Benchmark Hedge Leaves Uncovered
  9. Stacking a Benchmark Hedge and a Basis Hedge
  10. A Second Physical Trade Used as the Hedge
  11. Back-to-Back Pricing as the Cheapest Cover
  12. Where Gas Liquidity Stops: Point and Season
M2 The Gas Future in Detail Ch 25-34
  1. Reading the Contract Specification
  2. The Contract Unit and the Quoted Price
  3. Listed Months and the Expiry Calendar
  4. The Final Trading Day and What Happens Next
  5. Physical Delivery Against the Front Contract
  6. Cash Settlement and the Index It Settles To
  7. Position Limits and Accountability Levels
  8. Clearing Brokers, Give-Ups and Account Structure
  9. How the Settlement Price Is Formed
  10. Why the Hedger Almost Never Takes Delivery
M3 Sizing the Hedge Ch 35-45
  1. The Hedge Ratio Defined
  2. From Daily Quantity to Monthly Energy
  3. From Monthly Energy to Contract Lots
  4. The Lot Rounding Problem
  5. Netting Purchases Against Sales Before Sizing
  6. Sizing Against a Load Shape
  7. Sizing a Basis Hedge Separately
  8. When the Ratio Is Not One
  9. A Worked Sizing, Part One: The Exposure Sheet
  10. A Worked Sizing, Part Two: The Order Ticket
  11. Checking a Size Before It Is Placed
M4 Aligning the Hedge Month with the Pricing Month Ch 46-55
  1. The Pricing Month and the Hedge Month
  2. Why the Future Expires Before the Gas Flows
  3. The Index Fixing Date and the Swap Settlement Date
  4. A One-Month Mismatch Worked Through
  5. Hedging a Mid-Month Pricing Window
  6. Daily Pricing Against a Monthly Hedge
  7. Calendar Strips and Seasonal Blocks
  8. Weighting a Strip to the Delivery Profile
  9. The Cost of a Mismatch, Quantified
  10. An Alignment Check Applied to a Live Deal
M5 Hedging a Volume That Is Not Yet Known Ch 56-65
  1. Why the Volume Is Uncertain
  2. Expected Volume, Firm Volume and the Gap
  3. Hedging the Firm Core First
  4. Layering the Hedge as Certainty Improves
  5. Over-Hedging and the Loss It Creates
  6. Under-Hedging and the Exposure It Leaves
  7. The Temperature-Linked Volume Problem
  8. Hedging to a Percentage of a Demand Band
  9. Revising a Hedge When the Forecast Moves
  10. What Linear Cover Cannot Do About Volume
M6 Placing the Hedge Ch 66-75
  1. Acting Today or Waiting
  2. Order Types and What Each One Risks
  3. Working an Order Through a Broker
  4. Executing on Screen
  5. Requesting a Swap Quote
  6. Reading a Bid and an Offer Before Lifting It
  7. Executing Size Without Moving the Market
  8. Hedging at the Index Rather Than the Screen
  9. Stating the Purpose of the Trade
  10. Confirmation, Booking and the Audit Trail
M7 Rolling and Unwinding Ch 76-86
  1. Why a Winter Position Outlives Its Contract
  2. The Mechanics of the Roll
  3. What the Roll Actually Costs
  4. Rolling When the Curve Is Upward Sloping
  5. Rolling When the Curve Is Downward Sloping
  6. Timing the Roll Around Expiry
  7. The Stacked Hedge and Its Weakness
  8. Unwinding Because the Physical Changed
  9. Unwinding Because the Hedge Was Wrong
  10. Partial Unwinds and Resizing
  11. A Hedge Maintenance Log Worth Keeping
M8 The Cash and Margin Consequence Ch 87-95
  1. A Correct Hedge Still Costs Cash
  2. Initial Margin on a Futures Hedge
  3. Daily Variation Margin and the Mark
  4. The Timing Gap Between Paper and Physical
  5. A Winter Rally Against a Short Hedge
  6. Credit Support on a Bilateral Swap
  7. Clearing the Swap Instead
  8. Forecasting the Hedge Cash Profile
  9. When Funding Pressure Breaks a Correct Hedge
M9 What the Hedge Left Behind Ch 96-105
  1. Residual Risk Defined and Located
  2. Residual After a Benchmark-Only Hedge
  3. Residual After Adding a Basis Swap
  4. Residual Volume Risk
  5. Timing Residual Between Index Print and Settlement
  6. Residual Calorific Value Risk
  7. Measuring Whether the Hedge Worked
  8. Attributing the Difference Between Intended and Realised
  9. The Residual Page a Gas Risk Committee Needs
  10. Pricing the Residual Into the Margin
M10 Hedging or Taking a View Ch 106-114
  1. The Line Between Cover and Position
  2. Selective Hedging Is a View
  3. Leaving an Exposure Open Deliberately
  4. A Hedge Policy That Can Be Enforced
  5. Mandates, Limits and Authorisation
  6. Judging the Hedger, Not the Price
  7. Rationalising a Hedge Loss After the Fact
  8. Pressure to Lift a Hedge in a Rally
  9. Three Hedges Reviewed Against Their Objective
M11 Accounting, the Worked Case and the Limits Ch 115-125
  1. A Flat Gas Book With a Volatile Reported Result
  2. Marking the Derivative Through the Income Statement
  3. Hedge Accounting as an Election
  4. Designation, Documentation and the Hedged Item
  5. Demonstrating Effectiveness
  6. Where the Gain Waits Until the Physical Prices
  7. Breaking a Hedge Relationship
  8. A Worked Case, Part One: From Exposure to Cover
  9. A Worked Case, Part Two: Rolls, Margin and an Unwind
  10. A Worked Case, Part Three: The Result Explained
  11. Where Futures and Swaps Run Out in Gas

The brochure gives each of these 125 chapters a paragraph on what it covers and what you can do once you have worked through it.

This is course 12 of twenty

It stands alone, and it is also the entry point to the Natural Gas Desk Academy pathway.

Enrol or enquire See the whole pathway