The cruellest month

The impacts stemming from volatility in natural gas futures contract spreads – in particular the effects of seasonality on the March-April spread – have been seen in the recent dramatic losses by major hedge funds. Daven Voorhies explores some of the factors behind this potentially dangerous hedge tool

Recent financial blow-ups at prominent hedge funds have been blamed on the blow-out of Nymex inter-month natural gas future contract spreads. In particular the volatility of the March-April spread has been mentioned as the source of the losses. Traders often buy long-dated March natural gas for price appreciation from unexpectedly high northern hemisphere winter demand and sell an April contract