In commodity derivatives, you’ll find futures and options contracts whose underlying asset is natural gas, which is one of the cleanest sources of energy used all across the globe. Natural gas prices are affected by the natural gas inventory and production data, crude oil prices, etc., and indirectly this will affect the price of F&O contracts. The traders use these contracts to hedge or earn from natural gas price fluctuations.
So, let’s go through the 5 important pointers you should know about to trade in natural gas F&O contracts.
Things to Know about Natural Gas Futures and Options
Here are certain facts you should understand before you enter into this world of natural gas F&O:
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Trading and Contract Rules
For natural gas F&O contracts, the trading period is Monday to Friday. The trading session is from 9.00 a.m. to 11.30 p.m. or it can go to 11.55 p.m. according to the US daylight saving time duration.
In futures, contracts start or end according to the intimation of the launch calendar. The maximum duration of a contract is 6 months. In the natural gas option chain, the contracts start on the next business day soon after the expiry of the near-month futures contracts. It expires before the two business days of the expiry of the underlying futures.
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Initial Margin and Premium
The futures required you to give the initial margin which is the highest of the two: Minimum 10% or computed by the SPAN (Standard Portfolio Analysis of Risk) software.
In options, the premium paid by the buyer is blocked on a real-time basis. The initial margins will be calculated for each client’s portfolio, which includes their positions in futures and options contracts for each commodity.
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Maximum Open Positions Allowed for Individual Clients
For futures, it’s 60,000 mmBtu (Metric Million British Thermal Unit) or 5% of the total market open position in all natural gas contracts, whichever is higher.
For options, maximum position limits are separate from the limits for futures contracts. In this one, the limit is 120,00,000 MMBtu.
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Final Settlement Price
On the futures’ last trading day, the settlement price of the NYMEX Natural Gas (NG) front-month contract in terms of INR is considered as the settlement price. Also, do note that the futures are settled in cash.
In options, the daily settlement price of the underlying futures contract on the options contract’s expiry day is the settlement price.
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Start your Trading on a Renowned Platform
After understanding these important natural gas F&O contract specifications, start your trading only on a renowned platform such as the Dhan. You can access the real-time data for a natural gas futures price as well as for options on Dhan.
Dhan gives access to TradingView charts, and you can directly place an order and get an on-time analysis of different indicators.
Conclusion
Trading of natural gas futures and options can be done between Monday to Friday. You have to pay the initial margin and premium of the contracts and then check your open position limits. Finally, you can check the settlement price of the contracts to know how much value the contracts hold on expiry.
