Indices DJIA S&P 500 DAX 30 Nasdaq 100 Nasdaq Comp Nikkei 225 FTSE 100 SMI DJ Stoxx 50 CAC 40 Hang Seng Kospi Nyse Comp AMEX   -     -     -     -     -     -     -     -     -     -     -     -     -     -   10911 1137.4 5732.4 2127.7 2438.1 8981.9 5072.1 4984.1 2161.9 5732.4 19614.7 1817.4 7017.6 2174.7 Commodites Light Crude Oil Brent Crude Copper Gold Pallad Platinum Silver Dow Diamonds QQQQ   -     -     -     -     -     -     -     -     -   83.08 106.28 1.17 1758.7 730.5 1782 38.21 109.16 55.42 Last update: 11-08-2011 14:29:00 (GMT - Live)

Strip Trades Introduction Example 1 - Crude Oil Producer's Short Hedge Example 2 - Electricity Producer Fears a Price Decline Example 3 - Petroleum Marketer's Long Hedge, Rising and Falling Markets Strip Trades Spread Trades Strip trading is a flexible strategy that energy futures market participants use when hedging positions for several consecutive months forward. A market participant can lock in an average price for several months at a time by simultaneously opening a futures position in each of the months to be hedged through a single Exchange transaction. The average of the futures contracts over the period is the price level of the hedge. A six-month strip, for example, consists of an equal number of futures contracts for each of six consecutive contract months. Strip trades in the NYMEX Division futures contracts for light, sweet crude oil; heating oil; gasoline; natural gas; and electricity are executed as a single transaction during the open outcry trading session, after being bid and offered at an agreed-upon differential to the previous day’s settlement price. The strip and the differential is calculated based on the average value of those months currently versus the average of the previous day’s settlement prices for those months. The ability to obtain an average price for multiple months enables a hedger to average his cash flow over a period of time. Positions can be hedged for as little as two consecutive months, or can go forward for up to 12 months in unleaded gasoline; 18 months in heating oil and electricity; 30 months in light, sweet crude oil; and 36 months in Henry Hub natural gas. The futures positions assumed in a strip trade are like any other futures position. Any single month’s position can be liquidated by an offsetting futures trade, an exchange of futures for physicals (EFP), or, if desired, physical delivery through the Exchange clearinghouse. Strips let a hedger retain the flexibility to change a strategy by buying or selling additional futures contracts in any month, or liquidating the position of any month of the strip, something that cannot be done easily with over-the-counter instruments. Regular margin requirements apply to strip trades. The participant will be required to post and maintain margin levels for each month in the strip as if it were a separate position. Source: