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OPTIONS FOR LARGE GAS CONSUMERS IN VOLATILE MARKETS or

OPTIONS FOR LARGE GAS CONSUMERS IN VOLATILE MARKETS or How I stopped worrying and learned to love derivatives!. CAP. INDEX: NYMEX HENRY HUB NATURAL GAS, LAST DAY SETTLEMENT PERIOD: NOV14-OCT15 CURRENT STRIP: $4.01 (CLOSE OF BUSINESS 9-30-14)

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OPTIONS FOR LARGE GAS CONSUMERS IN VOLATILE MARKETS or

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  1. OPTIONS FOR LARGE GAS CONSUMERS IN VOLATILE MARKETS or How I stopped worrying and learned to love derivatives!

  2. CAP • INDEX: NYMEX HENRY HUB NATURAL GAS, LAST DAY SETTLEMENT • PERIOD: NOV14-OCT15 • CURRENT STRIP: $4.01 (CLOSE OF BUSINESS 9-30-14) • VOLUME: NO MINIMUM AND CAN USE ODD LOT VOLUMES PER MONTH • OBJECTIVE: PROTECT AGAINST UPSIDE PRICE RISK, RETAIN DOWNSIDE POTENTIAL STRIKE / CAP IN $/DTH PREMIUM IN $/DTH $5.00 $0.15 $4.50 $0.25 $4.00 $0.42 PROCESS • If market settles above strike price of the cap client’s cost / dth reverts to cap price. • If market settles below strike price of the cap client’s cost / dth will be the settlement price.

  3. COSTLESS COLLAR • INDEX: NYMEX HENRY HUB NATURAL GAS, LAST DAY SETTLEMENT • PERIOD: NOV14-OCT15 • CURRENT STRIP: $4.01 (CLOSE OF BUSINESS 9-30-14) • VOLUME: NO MINIMUM AND CAN USE ODD LOT VOLUMES PER MONTH • OBJECTIVE: PROTECT AGAINST UPSIDE PRICE RISK, RETAIN LIMITED DOWNSIDE POTENTIAL, AVOID PREMIUM OUTLAY STRIKE / CAP IN $/DTH STRIKE FLOOR $/DTH $5.00 $3.32 $4.50 $3.65 PROCESS • If market settles above strike price of the cap client’s cost / dth reverts to cap price. • If market settles below strike price of the floor client’s cost / dth reverts to floor price. • If market settles between strike cap and strike floor price client’s cost will be settlement.

  4. CAPW/LIMITEDPARTICIPATION • INDEX: NYMEX HENRY HUB NATURAL GAS, LAST DAY SETTLEMENT • PERIOD: NOV14-OCT15 • CURRENT STRIP: $4.01 (CLOSE OF BUSINESS 9-30-14) • VOLUME: NO MINIMUM AND CAN USE ODD LOT VOLUMES PER MONTH • OBJECTIVE: PROTECT AGAINST UPSIDE PRICE RISK, RETAIN 50% OF DOWNSIDE POTENTIAL, AVOID PREMIUM OUTLAY STRIKE / CAP IN $/DTH DOWNSIDE PARTICIPATION $4.26 50% PROCESS • If market settles above strike price of the cap client’s cost / dth reverts to cap price. • If market settles below strike price of the cap client’s cost / dth is 50% of difference between the strike price of the cap and settlement. • i.e. Market settles at $4.00 the client’s cost / dth reverts to $4.13. $4.26-$4.00 = $0.26. $0.26 x .50 = $0.13. $4.00 + $0.13 = $4.13 clients city gate cost.

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