{"id":1363,"date":"2014-11-02T06:07:44","date_gmt":"2014-11-02T12:07:44","guid":{"rendered":"https:\/\/allenergyconsulting.com\/blog\/?p=1363"},"modified":"2015-01-22T11:55:28","modified_gmt":"2015-01-22T17:55:28","slug":"finding-winning-power-trades-the-process","status":"publish","type":"post","link":"https:\/\/allenergyconsulting.com\/blog\/2014\/11\/02\/finding-winning-power-trades-the-process\/","title":{"rendered":"Finding Winning Power Trades \u2013 The Process"},"content":{"rendered":"

Many people have asked me to further explain the process of coming up with my recommend best winter trade<\/a> posted on October 9th<\/sup>, 2014 which on 10\/28\/2014 was up over 20% in less than a month.\u00a0\u00a0 Obviously the root of finding the trade was to use Power Market Analysis Near Term (PMA-NT)<\/a>.\u00a0 As I have noted many times PMA-NT is more of a service than a product.\u00a0 The default setup is still very useful without any customization, which I will demonstrate here.\u00a0 PMA-NT default is based on the forward curve.\u00a0 In this setup, the arbitrage being found are the disconnects between gas futures and power futures.\u00a0 In essence, gas futures get lost in translation converting to power futures due to the moving parts in the power sector.\u00a0 PMA-NT can help find those translation errors.\u00a0 PMA-NT can also be fed your fundamental outlook of natural gas markets to find those disconnects.<\/p>\n

Part of PMA-NT includes some very advance and powerful trading tools.\u00a0\u00a0 There are about 650 trading opportunities calculated in the default PMA-NT within in just 1 case (more can be added).\u00a0 The PMA-NT default runs five potential scenarios of the future.\u00a0\u00a0 In order to find out my best winter trade I used a new customizable trade screener tool called Double Value versus One Sided Screener<\/a>.\u00a0\u00a0 Double value screens out all the trades with at least a double value relative to the potential loss.\u00a0 This list quickly reduces the 650 trading options.\u00a0 Given I wanted a winter trade and something that didn\u2019t hold the risk of the Vermont Yankee nuclear retirement I filtered the results for Dec 2014 Winter.\u00a0 I also wanted a liquid contract so I filtered for On-Peak.\u00a0\u00a0 Then finally I sorted by Max gain.\u00a0\u00a0 All this occurred on one page in less than a few key strokes \u2013 screenshot below.<\/p>\n

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In the five cases simulated on 10-08-2014, the results show two trades that qualify on the logic that I wanted On-Peak trades in Dec 2014 that would have the potential to gain more than twice the loss potential.\u00a0\u00a0 Out of the five outlooks simulated by PMA, there was a case that showed a potential gain of $31.25\/MWh if one sold the NY-J On-Peak Dec 2014 contract.\u00a0\u00a0 Inversely there was a case that would show a loss of $6.5\/MWh.\u00a0 The default 5 cases involved moving the Henry Hub prices and altering weather impacts.\u00a0\u00a0 These cases can be customized for your region of interest.\u00a0 Further descriptions of the default cases are available.<\/p>\n

Now that I have identified a trade of interest I didn\u2019t just stop there.\u00a0\u00a0 As noted in the previous article I am risk adverse and would like a way to mitigate against tail-events such as pipeline explosions to other unforeseen extreme events.\u00a0\u00a0 In order to mitigate the risk I usually use a spread or heat rate play.\u00a0\u00a0 In addition, 5 cases are not enough for me to put on a trade – good enough to identify a trade.\u00a0\u00a0 The good news is I also had run a Winter Outlook<\/a>.\u00a0\u00a0 The winter outlook included 54 more cases to examine.\u00a0 It was clear to me the NY-J power forward price was being impacted from last year\u2019s polar vortex.\u00a0 This risk is a potential reality, but it would seem to be less of a probability.\u00a0\u00a0 However because of my risk adverse nature, I wanted to find a price hub that was not taking into account the polar vortex as much as NY-J.\u00a0\u00a0 Therefore if a polar vortex would occur to the level seen last winter I could be covered somewhat.\u00a0 Out of my 54 winter cases included running last year\u2019s weather outlook, but without all the extreme outages.\u00a0\u00a0 Base on that simulation it shows the AD-Hub having some room to run up with a polar vortex relative to the forward curve and relative to NY-J. \u00a0The NY-J contracts seems to be limited as the \u201cfear\u201d premium is already in play.<\/p>\n

Besides all these simulations I also did a walk back in history.\u00a0\u00a0 There are many questions that needed to be understood.\u00a0\u00a0 Polar Vortex last year was not really a January impact , how cold has it gotten in December and where did AD-Hub \u2013 NY-J\u00a0 spread moved to?\u00a0 As I noted in the previous\u00a0 article – From 2010 to 2013 December spread between AD-HUB minus NY-J went as wide as $-39\/MWh in 2010.\u00a0 With the spread at $44\/MWh I felt comfortable going with this trade as the best winter power trade.<\/p>\n

Given the market changes in less than a month, it is a good thing PMA-NT is designed to run daily.\u00a0\u00a0 The exact screener on 10-28-2014 shows no trade opportunities in the Double Value category.\u00a0\u00a0 The AD-HUB minus NY-J spread likely should be closed given the 20% return – per my risk averse nature. \u00a0I am sure there are other traders who can stomach the swings better than me – looking for an aggressive trading partner to work together to create a perfect balance.<\/p>\n

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At All Energy Consulting we understand supplying you with forecasts is only one step of the process and may even be the smallest value of the process.\u00a0\u00a0 The real value comes from the interaction with us and the willingness to explain the process and have frank discussions on the results.\u00a0 We believe no other consulting product will offer this unparalleled experience.\u00a0\u00a0 You will work directly with me, an experienced analyst from one of the top energy consulting company (Purvin & Gertz \/ now IHS, Deloitte) and one of the largest utilities in the industry (American Electric Power (AEP)).\u00a0 PMA-NT is not just a product, but more of a service.\u00a0\u00a0 We want to work with you in understanding the volatile power markets.<\/p>\n

This also applies to our long-term service PMA-LT.\u00a0 We can work with you to understand the impacts of various policies and develop a cohesive resource plan.<\/p>\n

Please contact us at your earliest convenience.\u00a0 We look forward to beginning the conversation.<\/p>\n

Your Willing to Work with You Energy Consultant,<\/p>\n

David<\/p>\n

David K. Bellman
\nAll Energy Consulting LLC- \u201cIndependent analysis and opinions without a bias.\u201d
\n614-356-0484
\ndkb@allenergyconsulting.com
\n@AECDKB
\nblog:\u00a0 https:\/\/allenergyconsulting.com\/blog\/category\/market-insights\/<\/p>\n

Sign Up to AEC Free Energy Market Insights Newsletter<\/p>\n","protected":false},"excerpt":{"rendered":"

Many people have asked me to further explain the process of coming up with my recommend best winter trade posted on October 9th, 2014 which on 10\/28\/2014 was up over 20% in less than a month.\u00a0\u00a0 Obviously the root of finding the trade was to use Power Market Analysis Near Term (PMA-NT).\u00a0 As I have […]<\/p>\n","protected":false},"author":1,"featured_media":267,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,6],"tags":[324,268,323,11],"class_list":["post-1363","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","category-power","tag-pma-nt","tag-power-trading","tag-screener","tag-trading"],"_links":{"self":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1363","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/comments?post=1363"}],"version-history":[{"count":5,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1363\/revisions"}],"predecessor-version":[{"id":1369,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1363\/revisions\/1369"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media\/267"}],"wp:attachment":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media?parent=1363"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/categories?post=1363"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/tags?post=1363"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}