An undisclosed hedge fund has taken out a big bet that natural gas prices will soar in the winter.
The Financial Times reports “the fund, as yet undisclosed, spent millions for the right to buy US natural gas at $10 per million British thermal units in January and February, up from Wednesday’s spot level just above $3 per mBtu.”
This has nat gas nerds atwitter, wondering who it could be. The FT compares it to bets taken in late 2007 that oil would hit $150 in summer of 2008.
This is a pretty bold call since most pundits don’t see the price going to $10. But, even if it doesn’t go there, the fund can still win. The FT explains:
Yet the hedge fund sees a chance of a spike. For months, an average 2,000 gas call options have traded each day for the New York gas benchmark contract. Last week, however, volume spiked one day as 10,000 January $10 calls were bought. Over the next two days, nearly 8,000 February $10 calls traded.
The slim chance of reaching double-digit territory was reflected in the price of the call options. January calls sold last week for about 5.6 cents, meaning that buying 10,000 contracts cost $5.6m.
Chris Thorpe, at Hudson Capital Energy, a New York options dealer, said the fund could be a winner even if the spot price did not reach $10. “If a 5-cent option goes to 10 cents, they’re happy,” Mr Thorpe said.
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