Natural Gas Futures and Options
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The History of the Natural Gas Futures Market Trading
Natural gas is a colorless,
shapeless and odorless fossil fuel in its pure form. It is a mixture of
hydrocarbon gases formed primarily of methane but it can also include butane,
ethane, propane and pentane. Around 500 B.C., the Chinese discovered that the
energy produced by igniting natural gas could be harnessed and used as a
desalinization tool. Ancient Chinese would use crude bamboo-shoot pipes to pass
the gas through and ignite it to boil sea water to create potable fresh water.
Around 1785, Britain became the first country to commercially use natural gas to
power street lights and indoor lights. In 1821, William Hart was the first man
to dig a well for the specific purpose of obtaining natural gas in the United
States and is considered the "father of natural gas" in America.
It is domestically produced and readily available to
end-users through the existing utility
infrastructure, natural gas has also become
increasingly popular as an alternative
Natural gas accounts for almost a quarter of United
States energy consumption, and the NYMEX Division
natural gas future contract is widely used as a
national benchmark price. Roughly 50% of the heating needs for the United States
are supplied by natural gas. The United States is considered the Saudi Arabia of
natural gas because of the huge supplies trapped in shale deposits and in the
Gulf of Mexico.
Natural Gas Futures and Options Quick Facts
10,000 mmBtu contract size
one cent move equals $100
trades all months
Natural gas futures symbol (NG)
Here is the energy products brochure courtesy of the CME
The natural gas futures contract
trades in units of 10,000 million British thermal
units (mmBtu). The natural gas futures price is based on delivery at the
Henry Hub in Louisiana, the nexus of 16 intra- and
interstate natural gas pipeline systems that draw
supplies from the region's prolific gas deposits.
The pipelines serve markets throughout the U.S. East
Coast, the Gulf Coast,
the Midwest, and up to the Canadian border. Many savvy end users of natural gas
use natural gas futures and natural gas options to hedge their price risks
related to higher prices. Contact us for more
information about natural gas hedging strategies using natural gas futures and
natural gas future options.
During the September 11 terrorist attacks the NYMEX
was destroyed but within days the natural gas
futures and natural gas options markets were trading
again. This is a testament to the strength and
viability of the energy future markets. The natural gas futures markets are a
perfect example of the pure bastion of capitalism that the futures markets
There are many corporate uses for natural gas futures.
The spread between the natural gas future
contract and electricity future contract– the spark spread – is another natural
gas hedging procedure used
to manage natural gas futures price risk in the power markets and utility plants.
Natural gas is much more clean burning that products created from
crude oil such as heating
oil and unleaded gas making its use much
better for the environment.
Because of the volatility of natural gas
future prices, a
vigorous basis market has developed in the pricing
relationships between Henry Hub and other important
natural gas market centers in the continental United
States and Canada. The Exchange makes available for
trading a series of basis swap futures contracts
that are quoted as price differentials between
approximately 30 natural gas futures pricing points and
Henry Hub. The basis contracts trade in units of
2,500 mmBtu on the NYMEX ClearPortsm trading
platform. Transactions can also be consummated
off-Exchange and submitted to the Exchange for
clearing via the NYMEX ClearPortsm clearing website
as an exchange of natural gas future contracts for physicals or exchange
of futures for swaps transaction. Learn More >>>
*Contract information changes from time to time. Please
click here to see the most recent
contract specifications and
click here for the most recent trading hours.
Henry Hub Natural Gas Future and Natural Gas Option Contract
Futures: 10,000 million British thermal units
Options: One NYMEX Division natural gas future
Futures and Options: Dollars and cents per mmBtu,
for example, $2.850 per mmBtu.
Futures and Options: Open outcry trading is
conducted from 9:00 A.M. until 2:30 P.M.
After hours natural gas future trading is conducted via the GLOBEX internet-based trading platform
beginning at 3:15 P.M. on Mondays through Thursdays
and concluding at 9:30 A.M. the following day. On
Sundays, the session begins at 7:00 P.M. All times
are New York time.
Futures: 72 consecutive months commencing with the
next calendar month (for example, on January 2,
2002, trading occurs in all months from February
2002 through January 2008).
Options: 12 consecutive months, plus contracts
initially listed 15, 18, 21, 24, 27, 30, 33, 36, 39,
42, 45, 48, 51, 54, 57, 60, 63, 66, 69, and 72
months out on a March, June, September, December
Minimum Price Fluctuation
Futures and Options: $0.001 (0.1˘) per mmBtu ($10.00
per contract) Therefore a $1 move up or down is equal to $10,000 per natural gas
Maximum Daily Price Fluctuation
Futures: $3.00 per mmBtu ($30,000 per contract) for
all months. If any contract is traded, bid, or
offered at the limit for five minutes, trading is
halted for five minutes.
Options: No price limits.
Last Trading Day
Futures: Trading terminates three business days
prior to the first calendar day of the delivery
Natural Gas options: Trading terminates at the close of business
on the business day immediately preceding the
expiration of the underlying natural gas futures contract.
Exercise of Options
By a clearing member to the Exchange clearinghouse
not later than 5:30 P.M. or 45 minutes after the
underlying natural gas future settlement price is posted,
whichever is later, on any day up to and including
the natural gas options expiration.
Option Strike Prices
Twenty strike prices in increments of $0.05 (5˘) per
mmBtu above and below the at-the-money strike price
in all months, plus an additional 20 strike prices
in increments of $0.05 per mmBtu above the
at-the-money price will be offered in the first
three nearby months, and the next 10 strike prices
in increments of $0.25 (25˘) per mmBtu above the
highest and below the lowest existing strike prices
in all months for a total of at least 81 strike
prices in the first three nearby months and a total
of at least 61 strike prices for four months and
beyond. The at-the-money strike price is nearest to
the previous day's close of the underlying natural
contract. Strike price boundaries are adjusted
according to natural gas futures price movements.
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To learn more about the energy futures visit
unleaded gas futures,
crude oil futures and
heating oil futures.
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natural gas futures.