March 08 traded at £41.30. This on face value does not seem out of the ordinary. However, if we look at Winter 07 which is trading at £38.00 it could be argued that March looks high. In reality because of the difference between emissions prices the disparity between Q4 and Q1 is being exaggerated. With Q4 trading at around £32.00 and Q1 trading at £44. If we take this to be the case then we can guess that February and March are expected to trade at around £45 and £44 respectively. This is still aggressively high if we consider that the cost of emissions for Winter last year was around €10 and day ahead consistently traded at around £25-£30.

A doubling of emissions prices shows that the day ahead is likely to rise by £3-5 perhaps suggesting that the premia for buying Q1 08 a notoriously volatile Quarter is around £10-£12. At this price it is perhaps worth taking a risk. A bold trader would look to refloat some of Q1 08 in its entirety but the risk player would look to trade out March which is less volatile and also looks heavily over priced in order to make the curve look curvey.