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Posts Tagged ‘Derivatives

Natural Gas Pipeline Customer-Satisfaction Critical Success Factors

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The following points represent the generally accepted critical success factors for natural gas pipeline companies of choice that serve to quantify the perceptions and needs of their customers based on the latest Natural Gas Pipeline Customer Surveys (2013) by research firm Mastio and Company.

01).  A pipeline company’s ‘Firm’ (i.e., guaranteed) gas transportation services must be highly reliable (i.e., guaranteed) in order to justify the higher billing rates charged for this service.
2).  A pipeline company’s scheduled gas volumes must always be highly accurate in nature.
03).  A pipeline company’s information systems for nominating, scheduling, allocating, balancing, and invoicing gas transportation and storage services must be highly effective and reliable.
04).  Accurate operational information must be made readily available to all of a pipeline company’s customers per FERC regulations and mandates (e.g., Info Post).
05).  A pipeline company’s account representatives must be accessible on a 24 by 7 basis in order to help resolve any customer-support related business needs in a timely, courteous manner.
06).  A pipeline company’s account representatives must also be good listeners who are capable of providing prompt, accurate responses to customer inquiries/requests based high levels of industry sector expertise.
07).  Pipeline company initiated communications with gas shippers and supply operators must be highly meaningful, informative, and of high quality.
08).  A pipeline company must be willing and able to offer its customers flexible transportation services such as gas pooling and aggregation (e.g., TABS services, etc.).
09).  A pipeline company’s billing invoices must always be accurate in nature and delivered to its customers in a consistent, timely manner.
10).  A pipeline company must maintain a strong culture of integrity, accountability, and compliance in terms of conveying ethical, honest and transparent business conduct.
11).  A pipeline company must create and maintain superior and sustainable value for its investors, customers, employees, and the communities which it serves.
12).  A pipeline company must maintain safe, reliable, and environmentally sustainable operating environments with open communications to all parties concerned.
13).  A pipeline company must stay focused on contributing to the economic, environmental and social well-being of the communities which it serves.
14).  A pipeline company must continuously deliver sector-leading value to its investors and other stakeholders.
15).  A pipeline company’s employees, executives, and board members must all be fully committed to a culture of providing superior customer service in a fair, efficient, and reliable manner.

Relevant Notes –
a).  ‘Firm’ gas transportation services are designed to reserve pipeline space and guarantee subscribing customers (e.g., hospitals; schools; homes; offices; etc.) that their specific volumes of gas will be scheduled and transported when needed at higher firm based rates.  In addition, firm transportation rates include any capital and fixed costs involved with setting up the pipeline company’s ability to provide firm transportation services, as well as any variable transportation costs involved in transporting the gas volumes across pipeline sectors and interchanges (e.g., fuel charges; reservation charges; etc.).  Finally, firm transportation rates must be paid by firm customers whether or not their scheduled gas gets shipped (i.e., sometimes gas pipelines cannot transport all nominated gas due to peak constraints, etc.).

b).  ‘Interruptible’ gas transportation services are designed to enable subscribing customers (e.g., industrial concerns; power companies; etc.) to schedule and move gas on a pipeline at a lower billable rate if/when space is available, but not if the pipeline is full with higher priority firm gas at the time.  In addition, interruptible transportation rates also enable the pipeline company to recover a smaller percentage (i.e., than firm rates) of the capital and fixed costs involved with providing the service, as well as any variable costs involved in transporting the gas volumes across pipeline sectors and interchanges (e.g., fuel charges; reservation charges; etc.).

c).  Transporting compressed natural gas through pressurized pipelines is considered to be the most efficient and economically feasible method available to the industry; other methods, such as rail and vehicular transport, are considered less desirable due to the low density nature of natural gas (i.e., as opposed to liquids). In other words, gas transportation profitability is closely tied to the volumes of gas shipped, and higher volumes of gas can be delivered to customers through pressurized pipelines due to the gas compression advantage, etc.

d).  A pipeline’s greatest value is now being able to mitigate shipping bottlenecks and serve customers with a reliable (i.e., firm) gas supply even during period of peak market demand. This is all due to the advent of flat gas price spreads resulting from the usage of fracking techniques and the resulting new geographical supply areas (e.g., Marcellus Shale, etc.). As a result, legacy pipelines can no longer profit from previously existing geographical spot price differentials, where they would receive cheaper gas in one region of the country and ship it to delivery points in another region of the country and sell it a for higher price.

e).  A pipeline’s capacity now needs to be fully contracted per firm reservation agreements for revenue purposes as gas prices can no longer be arbitraged based on geographical origin (per section d above). Lower cost production and shipping tariffs in the newly developed shale areas is displacing higher-cost production and shipping tariffs in the traditional supply areas of the country, leaving some pipeline capacity underutilized due to the resulting reduction in gas flows along the traditional west-to-east pathways. Note: The implementation of flow reversals from cheaper supply sources in the east and transported to delivery points out west is one way to mitigate this under utilization issue.

Written by Larry Fry, CCP, MBA

July 22, 2015 at 1:30 pm

Options Trading Advisory Services

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Looking for an options trading advisory service that provides consistently profitable option trades?  Schaeffer’s Investment Research is a very educational advisory service that also offers a gamut of different subscription services designed to enable the subscriber to mix and match different options trading styles.  I am currently a subscriber to Schaeffer’s “Super Trader” aggressive alert services package and its more moderate “Weekend Trader” bulletin service. Another good option advisory service to consider here is Option Monster, which also offers several subscription services tailored for one’s particular level of trading experience and desired level of risk.  Option Monster also has a very good education section within its website as well.  I am currently a subscriber to Option Monster’s aggressive “InsideOptions” alert service, which provides up to five Options trade ideas each week.  Schaeffer’s and Option Monster are two of the more popular options advisory subscription services out there, and they have both recommended some real winners for me in the past.  But my overall returns from both of these services have been tempered by the issuance of many additional recommendations that didn’t pan out too well (i.e., especially Schaeffer’s in the past); as a result, one needs to be aware of the overall picture here when striving to achieve a model of consistent profitability with these services.  In other words, additional technical analysis and fundamentals based research on the subscriber’s part is usually required in order to proactively eliminate most of the the additional recommendations that will not work out in order to increase one’s overall level of profitability.

In terms of specific options recommendation services that identify short-term opportunities that are about to “pop”, several alert services offered by Schaeffer’s and Option Monster immediately come to mind.  For instance, Schaeffer’s “Expiration Week Countdown”, “Overnight Trader”, and “Weekly Options Trader” alert services offer these aggressive short-term “pop” types of opportunities, as do Schaeffer’s “Event” and “Players” series.  Option Monster’s “InsideOptions” service also offers similar trade recommendations as those offered by Schaeffer’s, although Option Monster tends to curb the urge to flood the subscriber with recommendations that have not have been fully researched or scrutinized by its senior options analysts.  Furthermore, Option Monster recommendations issued by co-founder and “InsideOptions” lead analyst Pete Najarian have had the highest winning percentage (for me) of all of the advisory services mentioned here.  Pete Najarian does not issue direct recommendations too often for the “InsideOptions” service, but when he does they usually work out very well; as a result, I rate Pete Najarian as being the best of the options advisory analysts that I have been following for the past several years.  One additional options subscription service that one should consider here is the one being offered by, with which the folks over at Options Monster share a common history with.  In thinking in terms of comparing these different types of option recommendation services, I actually believe that quite a few of these advisory services “borrow” from each other to a certain degree and then repackage the information gleaned for their particular ongoing marketing models.  For example, Schaeffer’s and Zack’s seem to partner-up on some of the service recommendations offered by Schaeffer’s, as do Schaeffer’s and options research group What’sTrading.  In addition, Option Monster and seem to partner-up on some of their recommendations as well, which makes sense based on the above mentioned common history that they share.

In conclusion, I should reiterate that most of the popular options advisory services out there will recommend some big winners to you as a subscriber, but you’ll need to do some additional “homework” to weed out the non-winning ideas in order to make the service profitable on a consistent basis.  Again, my overall returns from the above mentioned subscription services are usually tempered with many additional ideas that do not work out, so I try to stay aware of the overall picture here in order to achieve a model of consistent profitability.  Additional technical analysis and fundamental based research on the subscriber’s part is necessary in order to proactively eliminate the additional ideas that won’t work out in order to increase one’s level of profitability.  Granted, these services will recommend a few nice winners for you per their advertisements, but you’ll definitely need to scrutinize their all of their recommendations with your own research (and closely monitor them) in order to make subscribing to the service worthwhile.  As an example of this, I have now gotten to the point with Schaeffer’s “Expiration Week Countdown” service recommendations where I weed out all but one or two of the ideas issued during options expiration week of each month.  For example, during options expiration week in August, 2010 I eliminated from consideration all of the recommendations made but one, which was one of the Netflix (NFLX) call options that was set to expire at the end of that week (Call -> NFLX -> AUG 21, 2010 -> Strike Price $110).  I selected this particular idea out of the overall group that Schaeffer’s recommended due to the recent high levels of volatility associated with NFLX’s stock price and volume at the time.  And this particular option call did very well for me that week (i.e., more than enough to cover the cost of my annual subscription).  So I have found that I am able to select one or two real winners to play with from the list of recommendations made by this particular service during options expiration week each month, and my experience has shown that the rest of the ideas are usually worth ignoring after doing the requisite research. Hope this all helps!

See link below for an enhancement of finance professor Peter Carr’s instructive paper on the implementation of the Black-Scholes call/put options pricing model on the HP-12C programmable finance calculator by Tony Hutchins.

The Proposed Financial-Transaction Tax Bill Issue!

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There is a financial-transaction tax bill being proposed by the U.S. Congress that intends to levy a 0.25% tax on all equity trading transactions.  The passing of this bill would severely marginalize the financial trading industry, making our financial markets even less efficient than they have already become.  The end result would be the loss of untold numbers of jobs, and financial markets would become even more susceptible to crashes due to the resulting lack of  liquidity. Obviously the passing of this absurd bill would negatively impact the financial trading (and related) industries; but it would also severely curtail a critical market capitalization vehicle used by small to medium sized companies, thus rendering them less able to compete and grow.  And with banks and other financial service entities either unable or unwilling to capitalize small to medium sized businesses these days (but able and willing to pay out absurd bonuses to undeserving executives), taxing financial trade transactions would only serve to make the current economic downturn more pronounced, possibly leading to even more disastrous consequences down the road. The resulting dissipation of market liquidity, trading volumes, and market price discovery, along with widened bid/ask price spreads, would destroy the positive aspects afforded by arbitrage and speculative trading.  Along with the addition of other possible government regulatory actions, this problem would then be further exacerbated by the resulting mass migration of American based trading volumes over to foreign (i.e., non-taxable) exchanges.

The one thing that really irks me about the proposed financial-transaction tax bill is that it is being framed as a so-called “sin” tax by its partisan proponents in order to appeal to the current populist mindset that the financial industry as a whole is guilty for the current state of the economy (i.e., high unemployment levels, etc.). Basically, the transgressions of a few that were enabled by the lack of understanding by government officials and regulators per the complex financial-engineering instruments being utilized are the primary culprits here. The imposing of a financial-transaction “sin” tax by the government is not a good substitute for developing an understanding of the new financial order and obtaining the level of competency necessary to effectively regulate the industry, thus establishing a stable (level) playing field for the economy as a whole.  So in my mind, this proposed financial-transaction “sin” tax is nothing more than an attempt to sweep a certain portion of the blame (or responsibility) for the current state of the economy under someone else’s rug.  In addition, the potentially negative impact of this “sin” tax would be exacerbated by the resulting changes in premium requirements by investors across the board due to the tax costs being passed on to them.  The potential drain on market liquidity and the resulting decrease in the capital available for struggling small-to-medium sized businesses would be hard to justify, especially for reasons of partisan politics.  So this proposed tax is not a viable solution or option in my mind, as it conceivably could lead to even more problems down the road as the state of our economy continues to evolve (or unwind). 

Finally, perhaps the biggest question in my mind is why do some of our elected government officials seem “hell bent” at times to make things worse for us rather than better (i.e., at both the micro and macro levels) in order to pursue partison based agendas?  This potentially dangerous bill needs to be dismissed (or vetoed) ASAP before it has a chance to cause serious long-term damage to our still frail (and unwinding) economy.  Click on the URL below to sign the revised “Financial-Transaction Tax is Detrimental to Many Industries” petition and have it forwarded to your representatives:’