Energy/Electricity Futures, Options and Derivatives

What you will learn:

• How to use futures contracts, options, swaps, trigger deals, "The Master Energy Hedging Equation" and other techniques to create customized risk management solutions to protect your company from natural gas, oil and electricity price risk, basis & LMP risk, delivery risk and volumetric (intermittency) risk.
• How physical and cash settled futures contracts, over-the-counter energy swaps and physical forward contracts are traded and the purposes served by these markets.
• How the ICE and CME-NYMEX futures exchanges and electronic marketplaces function, and what the differences are between ICE OTC, ICE Futures, CME Globex, CME Clearport Services and The Nodal Exchange.
• How "cash margining" is done with a futures exchange, its cash management impact and the role of the Clearinghouse.
• What the differences are between a futures commission merchant ("FCM"), over-the-counter broker, trader, market-maker, power marketer and wholesale energy merchant.
• What basis risk is, and how basis, spread, LMP and delivery risks can blow up your energy and electricity hedges.
• Why Trigger Deals are so popular, and what the difference is between the financial and physical basis ("fin" and "phys").
• How to structure profitable energy, electric power, and petroleum transactions without exposure to price risk; and how to financially turn one commodity into another.
• How to make money by buying valuable energy options from your customers and suppliers, and how your company may be missing a significant financial opportunity.
• Why "extendible" deals can be profitable, and how energy trading floors "trade around assets."
• What the terms "Contango" and "Backwardation" mean.

What you will also learn:

• What The Master Energy Trading Equation is, and why trading energy and electricity is different from the trading financial products and other commodities.
• The many different types of energy and electricity trading, why traders specialize, and the different ways energy traders can get an "edge" on the competition.
• What the rationale, concepts and mechanics are for basis trading, spread trading, trading around assets and structured transactions.
• The fundamentals of energy and electricity options, the implications of high energy price volatility, and why merchant energy and electric power assets are valuable Call options.
• How to hedge energy and electricity price risk with CME-NYMEX options contracts, cash settled OTC options and physical peaking options; and how to create price caps, price floors and "no cost" collars.
• How to calculate annualized volatility, the fundamentals of pricing options and why the Black and Black-Scholes models need to be modified to price energy and electricity options.
• The put-call option parity equation, synthetic option positions and how to delta hedge.
• What Tolling Deals, Asset Optionality, and the petroleum industry's "Carry Trade" are, and how they work.
• Why a merchant fossil fuel generating plant is a call option on the spot spark spread, and you will learn a simple rule that will optimize your daily decisions on whether to use or idle an electric generator, storage facility or transportation asset.
• How heat-rate-linked power transactions can effectively convert natural gas futures, options, and swaps into electric power financial instruments which can then be used to manage electricity risks or structure profitable transactions (optional additional class material offered at 4:30 pm on Day 1).