Page 138 - DCOM507_STOCK_MARKET_OPERATIONS

Unit 6: Trading Strategies

Self Assessment Notes

State whether the following statements are true or false:
13. A futures contract is a contract for delivery of a standard package of a standard commodity
or financial instrument at a specific date and place in the future but at a price that is agreed
when the contract is taken out.
14. The direction of the change in price tends to hold for cycles of contracts with different
delivery dates.
15. A long position in futures can be opened out by selling futures while a short position in
futures can be closed out by buying futures on the exchange.

Case Study Natural Gas Producer is Well Hedged, Refocused on
Core Business

Client

A privately held, natural gas producer.
The Challenge
For over a decade, our Client had been hedging their natural gas production with a
leading natural gas marketing company and, historically, was very satisfied with the
relationship as well as the hedging instruments and prices offered by the marketing
company. However, when faced with a challenging economic and lending environment,
the marketing company was forced to reduce our Client’s credit line as the marketing
company’s own credit lines had been drastically reduced by their lenders. Making the
matter worse, our Client’s existing hedge positions were set to expire in the coming
months. The economic environment had led many banks and trading companies to cease
accepting new hedging customers and our Client had no prospects for an alternative
hedge provider(s).
The Solution
Within days of the first conversation with our Client, we assessed their hedging goals and
objectives, quantified their hedging requirements and facilitated introductions to over a
dozen potential counterparties, none of which were previously known to our Client.
Within 60 days of being contacted by our Client, we were able to assist them in forging a
relationship and line of credit with a well capitalized counterparty that also happens to
offer unparalleled customer service. The new relationship and line of credit have led to
the establishment of a revamped hedging program for our Client.
The Results

Working with Mercatus Energy Advisors and the new counterparty, our Client once again
has a solid natural gas hedging program in place. Knowing that their revenues and cash
flow are once again predictable, our Client has been able to return their focus to their core
business of drilling for and producing natural gas.

Furthermore, since engaging Mercatus Energy Advisors, our Client’s hedging program is
significantly outperforming their internal benchmarks, and the company is well positioned
to produce even stronger results in the future.
Contd...

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