A hedge fund has made a large bet that natural gas prices will triple by winter just as the price of the commodity slides to a seven-year low.

Traders took notice last week when the fund, as yet undisclosed, spent millions for the right to buy US natural gas at $10 (£6.03) per million British thermal units in January and February, up from Wednesday’s spot level just above $3 per mBtu.

“This is the first bullish play I’ve seen in quite a while,” said Raymond Carbone, president of Paramount Options on the New York Mercantile Exchange floor. “It caught the eyes of people in the [options] ring.”

The bet echoes purchases of call options – contracts that give the holder the right to buy at a fixed price and date – in late 2007 to cash in if oil moved to $150 a barrel by mid-2008.

The options were referred to as “lottery tickets” at the time because of their low cost and high potential reward, but the move paid off when oil surged.

US gas futures on Wednesday fell to $3.049 per mBtu, the lowest in seven years, as the market remains over-supplied. However, some say there is potential for a recovery once drilling rig shutdowns due to weak demand over the past year start to bite.

Ben Dell, an analyst at Bernstein Research, said that with US natural gas output falling 30 per cent this year, the steepest rate ever, a glut will turn into a deficit and prices will rise. But forecasters do not expect the market to hit $10 per mBtu soon.

Yet the hedge fund sees a chance of a spike. For months, an average 2,000 gas call options have traded each day for the New York gas benchmark contract. Last week, however, volume spiked one day as 10,000 January $10 calls were bought. Over the next two days, nearly 8,000 February $10 calls traded.

The slim chance of reaching double-digit territory was reflected in the price of the call options. January calls sold last week for about 5.6 cents, meaning that buying 10,000 contracts cost $5.6m.

Chris Thorpe, at Hudson Capital Energy, a New York options dealer, said the fund could be a winner even if the spot price did not reach $10. “If a 5-cent option goes to 10 cents, they’re happy,” Mr Thorpe said.

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