I'm beginning my internship on a physical gas desk in Houston at a super-major firm on Monday so naturally I've been reading up on the business as much as my final exam schedule allows and a question came to mind:
Does a market for options on specific physical commodities exist?
I know that you can buy options on futures contracts but I was wondering if you could buy options on physical gas at regional hubs (Algonquin City-Gates, Houston Ship Channel, etc.)
If so, are these options done informally with OTC contracts or is there actually an exchange where these are traded?
Finally, regardless of whether or not the options are OTC or exchange based (i.e. if they even exist in any capacity) what type of firm would engage in the activity of writing these contracts? If a trader were to buy a short call butterfly spread on Houston Ship Channel gas because he was bullish on it's implied volatility what type of counter-party would the trader go to in order to structure such an options deal?
Any help with this would be very appreciated! I realize that I could be blatantly misinformed on this and it may not make sense for these types of contracts to exist at all, but that's why I'm asking.
Thanks!
you're focusing way too much on the wrong things if you're going to work on a physical desk. But yes regional gas is traded. ICE is used. Don't sweat it too much, you'll learn way more on the job than you could pick up from internet chatter as physical is a very niche field, congrats and work hard and try to make a good impression.
Learn more about gas basis if you're really keen.
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