The futures market again came under selling pressure onWednesday as traders embraced the possibility Hurricane Georgeswould not be a threat to natural gas concerns in the Gulf ofMexico. The October contract was able to post an optimistic open at$2.23 before profit taking led the contract to settle at $2.131, a5.5 cent loss for the day.

The slight change in the forecast track of Georges was the mainfeature Wednesday. Early in the trading session reports werecalling for the storm to take a more westerly heading into theGulf. Fred Gesser of Omaha-based Strategic Weather Services saidthe track of the storm was largely dependent of its ability tocurve to the north. He said the odds favored the storm trackingbetween Panama City, FL and Mobile Bay, AL, but did not rule outthe chance for the storm to track as far west as New Orleans.

However, Ed Kennedy of Miami-based Pioneer Futures feels it isstill too early to either buy or sell based on any of the forecastsout there. He estimates there is a 10-15 cent storm premium stillimbedded into the October contract, and feels the forecast to beissued this morning will give the market more confidence to eithercontinue the sell-off or buy into another storm rally. “The problemright now is that not all of the weather models are in agreementbecause of the uncertainty surrounding the cold front due to hitthe Gulf states. If that front can dips into Florida, modelsgenerally agree Georges will be forced inland – well East ofPensacola near the big curve in Florida where there are no offshorerigs. However, if the cold front takes its time in arriving, thenGeorges would be free to pursue a more northwesterly route towardthe Mobile Bay area.”

Options: Since the volatility of the market is such aninfluential factor on their price, options start to becomeuneconomical to use as a hedge if the volatility gets too high,says Kennedy. “It doesn’t make sense for to hedge a 3 cent positionwith a 20-cent option.” However, he continued by offering there areways to minimize your price by taking back some of the volatility.A call spread for November that consists of buying a $2.40 call andselling a $2.80 would be cheaper than buying a outright call, hecontinued.”

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