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A trader buys natural gas at a fixed price Y at Henry Hub and then sells it at Henry Hub spot market for L3D +
A trader buys natural gas at a fixed price Y at Henry Hub and then sells it at Henry Hub spot market for L3D + $0.02. Since the trader will be receiving a floating price (depends on L3D), she wants to hedge by a futures swap (i.e., she would rather receive fixed price). A futures swap exchanges L3D for a fixed payment X. a. On the diagram below, the cash flows for the trader are marked correctly given the trader's strategy. (True / False) Gas @ HH Gas @ HH Market TRADER Supply L3D + $0.02 L3D Futures Swap b. The trader will profit if X-Y) + 0.02
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