‘Gas At The Pump’ futures offer new trading opportunites
The CBOE Futures Exchange (CFE) recently launched “Gas At The PumpSM”
futures.
This innovative new product is designed to track the retail price of regular gas
that consumers pay at the pump. The CFE launched six Gas At The Pump Futures
contracts, one based on the national average from a survey of 800 stations
across the country and five regional contracts based on the average price
specific to their geographical location.
Supply chain disruptions and speculative trading helped push energy prices to
record highs earlier this year. The effect has been felt both by businesses and consumers
who are worried by the extreme volatility, higher costs
and the resulting impact on their balance sheets.
Until now, anyone wishing to hedge their exposure to
gasoline price volatility has
been forced to trade a product that may have only a slight correlation to their
actual cost. However, Gas At The Pump Futures offer traders a wide choice of
products and because they are broken down by geographical region, traders can trade
the contract that directly impacts them. This feature is highly advantageous to small
businesses and consumers.
The contract size and margin requirements are more favorable, too. The
contract multiplier is 10,000. So, for example, US Regular Reformulated January
2006 (UP/F6) is currently trading at 239.1, making one contract worth $23,910.00.
Margin rates vary depending on the specific contract but are around $4000 for
speculative positions (less for hedgers) and less than half that for spreads
(you can find the exact rates
here).
Chart 1 (below) shows the price history for the January 2006 US Regular
Reformulated (GUF6) futures contract.
Data Source: CBOE Futures Exchange (CFE)
Chart 2 (below) shows the price history for the January 2006 West Coast PADD
futures contract. You’ll see that prices are higher on the West coast. This is
important for a company that only has transportation costs on the West Coast
because they can hedge their risk against the actual price they are paying at
the pump.
Data Source: CBOE Futures Exchange (CFE)
As you look through the various contracts you’ll notice the price differences
across the country. As expected, prices are cheapest in the Midwest and most
expensive on the West Coast. The five regional contracts now allow companies to
make business decisions based on costs that are relevant to them. This
tremendous flexibility is one of the best features of the new products.
Another benefit is that all the contracts are
cash settled. That means that no one has to worry about taking delivery and
incurring storage costs. This makes “Gas At The Pump” futures more attractive to
speculators too, allowing them to employ a wide range of trading strategies from
outright to calendar spreads.
Ashton Dorkins
Initial contract months for GAPP futures will be December, January, March
and June. In general, there will be two near-term contract months plus two
additional contract months on the March quarterly cycle. Price quotations will
be in cents per gallon of gas (e.g., two-hundred and ninety-eight cents per
gallon will represent $2.98). The last trading day will be the third Friday of
the expiring month. Trading hours are 8:30 a.m. to 3:15 p.m., Central Time. For
more details, ticker symbols and contract specifications, go to:
https://cfe.cboe.com/Gas.
The CBOE Futures Exchange is a wholly-owned subsidiary of Chicago Board
Options Exchange, Incorporated, offering an all-electronic exchange, open access
market model, with traders providing liquidity and making markets. CFE is
regulated by the Commodity Futures Trading Commission (CFTC). More information
on CFE and its products, including contract specifications, can be found at:
https://cfe.cboe.com.
CBOE, the world’s largest options marketplace and the creator of listed
options, is regulated by the SEC. For additional information about the CBOE and
its products, access the CBOE website at
www.cboe.com.
CBOE, Chicago Board Options Exchange is a registered
trademark of Chicago Board Options Exchange, Incorporated. CFE(SM) , Gas At The
Pump(SM) and GAPP(SM) are servicemarks of CBOE Futures Exchange, LLC.