Wednesday, January 2, 2013

2013 Blog Goals

My goals for 2013 are two posts per week (on average).  I would like to post one short term trade idea per week while also posting one investing idea.  Ideally, I could make four posts each week with an idea for both on the long side and short side but don't want to get carried away (my last post was in May 2012 before tonight).   

My first post for 2013 is a short term trading idea is Natural Gas.  While nat gas has been very volatile, the general movement is up a few days, down a few days and relatively staying in range.  I believe that the market is range bound with low prices stagnating supply as well as slowly increasing demand.

As I look at the chart today, I am not sure if today's movement (down to 3.05) is a bad quote or not.  Regardless, it does remind you that there is always risk and that you need to keep plenty of margin.  I suspect that even if the move was real, the market has already corrected the false move. 

One of the best sources for fundamnetal news I have found is the temperature outlook by the National Weather Service.  I generally look each day and see if the forecast has been updated.  You can drill down into multiple time periods with links for 6-10 days, 8-14 days, 1 month, and 3 months.  Also this link is helpful for drought information and grain trading during critical planting and growing months. 

http://www.cpc.ncep.noaa.gov/

Due to the move on monday (and my perception of volatility) I recommend selling Nat Gas 3.15 for February Nat Gas (expires end of January).  Why did I chose 3.15?  I believe that there is strong support there as well as relatively strong congestion between 3.25 and 3.30.

On any sustained rally towards the moving averages near 3.55, I would use that opportunity to then turn the position into a strangle by selling 3.90 calls. 

Source: TDAmeritrade ThinkorSwim Platform


Disclosure: Short volatility in Nat Gas

3 comments:

  1. http://www.bloomberg.com/news/2013-01-02/natural-gas-futures-tumble-on-forecasts-of-warmer-u-s-weather.html

    According to the article, all trades stand from last night. Wish I was watching the screen for that free money.

    Sold Feb 3.15 puts today for 0.101.

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  2. A decent up day on Friday and a little bit of follow thru Sunday night and the trade is close to half price. I put in a limit to cover at 0.042.

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  3. Managed to cover and exit these on continued strength before NG rolled over later in the season.

    I will post an update this week on my continued thoughts and outlook for NG. The more I think about it NG is more likely to see a 2 handle then a 4 handle. That is even with June contract trading 15 cents higher. It seems bearish that NG cannot rally whatsoever. May need to change my playbook and look for calls to sell or maybe just some far out strangles.

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