Natural Gas Future : how to know the cost of holding a position for a year?

January 29th, 2023, 02:30 PM

Hi everyone,

As you know, the price of natural gas is falling.

In this context, I would like to buy some natural gas, and keep my position for a year or two, hoping the gas goes during this period towards 5k or 6k.

I think it has quite a cost to keep the position so long. How to estimate that cost ?

Thank you

January 29th, 2023, 05:17 PM

Guess it depends what you mean by cost?

If you buy prompt month gas with the intention of rolling and holding, the unseen cost is roll yield. Feb23 settled at $3.109 but Feb25 settled at $4.659. Hence if the market literally did nothing for 2 years, and you bought and rolled every month in two years you would own a Feb25 contract with a price of $4.659. So even though the outright price is up 50% you would have made nothing. To capture that 50% increase you will need to buy physical gas and put it in storage.

Natural Gas Future : how to know the cost of holding a position for a year?

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Natural Gas Future : how to know the cost of holding a position for a year?