Fill 'er up at the CBOE pump??

Discussion in 'Financial Futures' started by traderjb, Oct 10, 2005.

  1. So I see that the CBOE's futures exchange is going to start trading gasoline futures in competition with NYMEX. Though these are retail prices whereas the NYMEX is wholesale, right? And this one will be electronic versus the pits at NYMEX. But wasn't there talk about moving all or most of the Unleaded into Clearport (or was that ACCESS, I get these two confused sometimes)?

    Perhaps you can arb this thing, Long HU short the CBOE retail gas?
  2. Don't understand why they didn't come up with a single contract price-weighted over the geographical regions? This would seem more interestingly marketwise instead of trading many smaller contracts.
    Which one should I pick right now?
  3. Spddst


    You are better off having separate contracts for each area – I’ll refer to natural gas as an example. If the northeast is in a cold spell, I want the pricing for that area, not a composition contract with embedded west-coast contracts. I’d also want the difference for the purpose of hedging with weather derivatives to offset warmer weather in a specific area – Boston, NYC, etc..

    It would be nice to have a general index, but one can create it in Excel based on output and usage within the regions and weight it accordingly.
  4. Has anyone actually tried these out yet? Just curious. Also, someone mentioned weather derivatives, how are they?
  5. Spddst


    With regard to weather derivatives, a trader with a position in natural gas and/or home heating oil can hedge warmer weather by taking a position in specific geographic areas, for example Boston, New York. One could also use weather derivatives for sports events, golf courses and other outdoor events. There are a few firms who use weather derivatives for speculation, but most use it for hedging – if I’m long nat gas and it gets warmer in Boston, people won’t be consuming – I hedge with a Boston weather derivative.
    You can also use it for a variety of commodities: orange juice being one.
  6. looks like a non event so far in this product

    volumes / open interest levels not there so far

  7. Strong probability that this product never takes off. Anyone who has significant gasoline risk uses NYMEX or OTC (i.e. Platts) products and will continue to do so. If the CBOE was trying to appeal to retail/small specs, they should have rolled out a small, electronic contract (based on wholesale, not retail prices) similar to the CL and NG mini contracts.
  8. You can trade gasoline basis swaps in the OTC market (LA, Chicago, Boston, Gulf Coast). Also, for what it's worth, Gulf Coast and LA swaps can be cleared via NYMEX.