WTI on ICE versus NYMEX

Looking at the clearing fees, it's a pretty clear advantage for ICE ($0.73 versus $1.45 a side). It'll be very interesting to study this further, see if the book depth between the two is very different... and whether I'm likely to get better/worse fills from one versus the other.

And there's no reason I can't hedge NYMEX WTI options with ICE WTI futures, right? The two are completely fungible?

 

Correlated but definitely not fungible, you're trading physical against financial.

 

Fungible? No. Fungible is when you buy on Nymex and sell on ICE and you are flat for the clearing firm.

 

Putting my new Bloomberg to work... I see the spread here. Looks like it's basically at zero except when one market is closed versus the other...?

For those of us who have no intention of holding physical, and will always close out before delivery... any reason to think there will be a significant spread while both markets are trading?

 

I would say no, but there are some people who know better...

 

"For those of us who have no intention of holding physical, and will always close out before delivery... any reason to think there will be a significant spread while both markets are trading?"

If your intention is to do something like spread WTI versus Brent, then by all means use the ICE WTI. If you intention is to somehow arbitrage ICE WTI versus Nymex WTI, no way no how.

 

My intention isn't to profit off of mispricings between ICE WTI futures versus NYMEX WTI futures.

But I'd like to use ICE WTI futures as a delta hedging tool for NYMEX WTI options... when NYMEX is closed, for example. And so, they need to be "equivalent" in that sense at option settlement (and preferably at all points before hand). Just so you understand: I *want* them to be equivalent.

 

My advice - just make sure that your FCM will give you the appropriate SPAN performance bond intercommodity spread credit rate. If it's LCH or CME Clearing House, they are the ones who will ultimately tell your FCM if they have a credit agreement in place. I used to do alot of CME ClearPort versus ICE LCH Swaps and got the offset clearing Man Financial. Just double-check.

 

Good call. I'm not expecting to use it frequently, so not as critical.

It occurs to me that in a situation like that we saw on Monday (with the markets closed middle of the day), or even a 9/11 style attack... being able to trade WTI out of London as a backup will be very, very convenient.