Different shades of CME natural gas futures

Discussion in 'Commodity Futures' started by spriteork, Jun 16, 2021.

  1. Hello.
    I've noticed that CME have different options to trade nat. gas

    for example
    standard NG - Natural Gas (Henry Hub) Physical Futures,
    and 2 financial contracts
    HP - Hatural Gas (Henry Hub) Penultimate Financial Futures
    HH - Natural Gas (Henry Hub) Last-day Financial Futures

    HH expires same date as NG, and HP expires 1 day before expiring NG (looking at
    pre-last trading day settlement)

    I can't understand, why quotes of HH always differ from NG quotes.
    For example on NG Aug'21 i see bid/ask 3.268/3.269,
    on HP Aug'21 i see bid/ask 3.2670/3.2690 (okay, the same as NG but financial contract),
    but on HH Aug'21 i see bid/ask 3.259/3.261

    Why that future contracts have so significant different,
    although expiration date is the same?
    What I don't understand about the contract specification
    maxinger likes this.
  2. SunTrader


    Was there any trades (or open interest) showing for HH?

    Otherwise this may apply:

    "All market data contained within the CME Group website should be considered as a reference only and should not be used as validation against, nor as a complement to, real-time market data feeds. Settlement prices on instruments without open interest or volume are provided for web users only and are not published on Market Data Platform (MDP). These prices are not based on market activity."
  3. Yes, there is a volume about 30k contracts per day.
    And i'm seeing live bid and ask prices in terminal,
    they always differ from NG prices, can't figure out why
    Last edited: Jun 16, 2021
  4. I found an answer:
    HH (financial nat gas) costs a little less than NG (deliverable nat gas)
    because there is a risk of some deficit at expiration, some commercial may want to take NG delivery
    and you can close position only buying NG back at higher price,
    than you can sell back HH contract.

    For example on Nov expiration NG~6.22, HH~6.198
  5. And before NG expiration and delivery, you can close HP and NG at the same time,
    so price difference is absent
  6. RedSun


    NG is a physical contract. Some energy firms are able to hold to maturity and take physical delivery. They can also do a physical to financial swap during delivery month. So energy firms are clearly in control of NG. All other financial only firms like hedge funds have to close out positions ahead of last trading day.

    Both HP ang HH are hedging vehicle only. They do not control physical gas.

    So NG is like Bitcoin futures. HP and HH are like Bitcoin futures ETFs.

    If you trade natural gas, you know there is a physical premium or discount against paper contract or index. In this market, the premium can be huge over winter.

    So NG, HP and HH are different things. Only NG is the real thing and it probably has the largest volume.
    maxinger likes this.
  7. RedSun


    No so. Some energy companies let NG expire and take physical delivery. Both HP and HH do not have that. They are not the same.
  8. RedSun, I mean that it's easy to support price equivalence between HP and NG,
    because HP stops to trade with final price 1 day before NG expiry,
    and some hedge funds can easily close NG and HP at the same time.
    So I think "physical premium or discount" is close to zero...

    With HH vs NG situation is different, HH final price is known only when NG is expired,
    and you can't trade and close it anymore. Only commercial do something like "arbitrage" here.
    Last edited: Oct 28, 2021
  9. Anyway I'm using HP to close my positions in options (LN) if needed,
    and it's fine that both HP and LN options settle against the same price.
  10. maxinger


    are you trading those things at close to expiration?
    what is the reason for that?
    are you doing rollover?

    at close to expiration, the volume for that contract will be rather low.
    who knows, brokers might disallow you to trade those contracts due to
    fear of physical delivery.
    #10     Oct 28, 2021