Oct-Nov (V/X) Natty Spread

K

kalki

Hello,
I am kind of new to NG futures. Can anyone tell me what is the significance of this spread or how to interpret it or what drives it?
And how it has behaved historically? How VX09 has behaved in the last few months?

Thanks so much. I got some intuition but will appreciate help from experienced people out there.

Thanks
 
Rbob, Thanks. Nice question to motivate the thinking.

I would want gas price to escalate between october and november, once I have bought oct gas. I would want to buy oct gas for a low price.

Thus I would want lots of gas in storage to depress the october price. I would want winter to start early and be very cold early on for nov gas to rise. Thus, an overfill and early start to winter with nasty cold are the variables that will help me.

Am I missing anything? I appreciate your question as opposed to just handing over an answer to me.

regards
 
so since oct and nov are futures are just expected spot prices, we could be looking at the VX spread say sometimes in january. since the futures price is expectation of the spot price the time futures contract expires, this expectation has to take into account all that can transpire between 'now' (our frame of reference) and the expiry of oct contract. Along this time line between 'now' and expiry we will have to consider supply and demand balances and conjecture how much gas could get injected. The following scenarios or a combination thereof will lead to lots of gas in storage:

Since our frame of reference begins in jan:

winter is not cold, we end march with high levels of gas in storage

between april and october it does not get too hot keeping power demand low.

And perhaps most importantly there are no shutins due to hurricanes or low hurrican activity.

all this will compound to 'lots of gas in storage'

what do you think?

regards
 
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