Past event: Energy/Electricity Futures, Options, and Derivatives Online Training

Training Sessions
Session 1: Introduction to Energy & Electricity Commodity Markets

1. The structure, function and terminology of spot, cash, and forward natural gas, oil, and electricity commodity markets, and what energy derivatives are.
2. The three different types of forward energy markets (futures, financial over-the-counter & physical) and how these markets relate to each other including the differences between physical and financial natural gas and power.
3. An overview of the large and private ICE OTC over-the-counter electronic energy market and the importance of liquidity.
4. How forward financial markets reduce risk and add value for energy consumers, producers and electric generators.
5. An overview of the large and private ICE OTC over-the-counter electronic trading platform, the importance of liquidity, and what "clearing a trade" means with the CME Clearinghouse and ICE CLEAR.
6. The difference between brokers, FCMs, traders, dealers, market-makers, marketers, power marketers, and wholesale energy merchants, and how they make their money.
7. The meaning of "bid/offer spread" and other transaction terminology.
8. The difference between price and "basis" risk.
9. Why the hedging needs of energy producers and end-use consumers are different from those of energy marketers, oil refiners and gas/coal fired electric generators.
10. The difference between price and spread hedgers.
11. What liquidity risk is, and why it is a critical issue for energy markets and traders.
12. The structure, function and terminology of spot, cash & forward natural gas, oil and electricity markets, and what energy derivatives are.

Session 2: Introduction to Energy Futures Contracts and Exchanges

1. The difference between physical and cash settled energy futures contracts and why the same financial instrument can have ten different names.
2. Why the futures market is a game of virtual promises, how futures trading adds value to the industry, why trading is a zero sum game, and why futures trades do not directly affect delivered physical volumes.
3. A summary of energy futures contracts and how the CME-NYMEX and ICE Futures Exchanges operate.
4. How the "ICE" and CME-Globex trading platforms work, and how trades are cleared through the CME Clearinghouse and ICECLEAR.
5. How cash margining and your futures brokerage account works, and how cash management/funding risk can blow up even prudent hedges.
6. What energy and electricity commodity swaps/cfds are, and how these instruments are similar to financial futures contracts.
7. An overview of the large and private ICE OTC over-the-counter electronic energy market, the importance of liquidity, how the "ICE" and CME-Globex trading platforms work, and how trades are cleared through the CME Clearinghouse and ICECLEAR.

Session 3: How To Hedge Energy/Electricity Price and Basis Risk

1. Why energy companies financially hedge.
2. The difference between price hedgers and spread hedgers.
3. How to create buyer and seller futures hedges with physically AND financially settled futures contracts and swaps.
4. The many real-world issues that can impact futures hedging.
5. What basis risk is, and how "basis blowout" can destroy a buyer's or seller's futures hedge.
6. How to hedge energy and electricity price risk with powerful CME and ICE financial futures contracts.
7. How to use a basis swap or financial futures contract to hedge natural gas and electricity locational basis risk.
8. How to hedge both basis and delivery risk using trigger deals.
9. What components make up the master hedging & trading equation, and what the difference is between financial and physical locational basis "fin" versus "phys".
10. The basics of heat-rate-linked power transactions and why this technique is uch a powerful electricity risk management and deal structuring tool.

Session 4: Introduction to Energy & Electricity Options

1. What energy and electricity options are and why they are so valuable.
2. The meaning of "puts", "calls", "intrinsic value", "time value", "deep out-of-the-money" and other options-related terms.
3. Why capacity payments, demand charges, and reservation charges are just another name for option premiums.
4. The characteristics of the CME-NYMEX, over-the-counter, and physical options markets and how they differ from each other.
5. The difference between American, European and Asian-style options.
6. How CME-NYMEX-traded energy options are bought and sold.
7. Why one should never "early exercise" an American-style CME-NYMEX or physical options.
8. How to hedge price risk with energy option by creating price caps, floors & collars.
9. How a buyer can create a price cap using CME-NYMEX call options (An example).
10. The three trade-offs that must be considered when hedging with options.
11. How buyers and sellers can create a "No Cost" price collar using CME-NYMEX options (An example).

Session 5: Introduction to Energy Trading and How to Trade Around Assets

1. The many different types of energy and electricity trading, why traders specialize, and the different ways energy traders can get an "edge" on the competition.
2. What the rationale, concepts and mechanics are for basis trading, spread trading, and trading around assets.
3. How the many types of energy, electricity, and asset-based trading can be summarized by one simple three dimensional graph.
4. Why merchant energy and electric power assets such as firm transmission capacity, storage, processing, and generating plants are valuable Call options on spreads, and how access to these assets give energy traders a significant advantage.
5. What asset “optionality” and "trading around assets" mean.
6. What the terms "Contango" and "Backwardation" mean, and how the energy “carry trade” works.
7. A simple rule that will optimize your daily decisions on whether to use or idle assets such as firm transmission capacity, energy storage, gas processing, or natural gas/coal electric generating plants.
8. A detailed example of how to hedge and trade around firm transmission capacity. This example can be easily adapted to optimizing the income of energy storage, processing, and electric generation assets.

Session 6: How Energy Marketers Make Money Buying Under-Priced Options From Their Customers and Suppliers

1. A brief overview of puts, calls, and basic option terminology.
2. What a cash-settled European "swing" option is, and how it works.
3. How to calculate annualized volatility, and why there can be immense price risk in the physical energy and electricity markets.
4. Why energy commercial players often undervalue energy options and leave money on the table through lost opportunity.
5. How energy marketers make money from commercial players mispricing risk.
6. A basic structured transaction (Example #1)
7. How a marketer can by valuable put and call options for "10 cents-on the dollar" from the marketer's customers and suppliers.(Example #2)
8. The powerful money-making potential of extendible transactions. (Example #3)