Suppose you plan on delivery 2,000,000 MMBtu to Waha (west Texas, Permian basin, natural gas hub) in August and you wish to hedge your revenue. The contracts you have available are the HenryHub futures contract and the Waha basis futures contract (which settles to HenryHub spot index minus the Waha spot index). The Waha basis futures contract is traded on theice.com.

Assume you are using the CME Henry Hub contract how many contracts do you enter into? Do you go long or short these contracts?

How many Waha basis futures contracts do you enter into? (WARNING: check on theice website and notice that the size of this contract is not the same as the CME Henry Hub contract)

Do you go long or short these contracts?

Answer rating: 100% (QA)

To hedge the delivery of 2000000 MMBtu to Waha in August you would need to enter into futures contra... View the full answer