Here is a quick view of Natural Gas. I have been very bearish and for the most part been right. I was wrong in my last post calling for a 2 handle before a 4 handle.
I think we still can get to a 2 handle, however it is more likely that we trade in the low 3s. When comparing NG in November at 3.56 and December at 3.74 (as I write this), that is a major decline. I believe that in 1-2 months time the natural gas market will start seeing reports of storage getting full or worried about getting full etc. I base my opinion on the excel chart / picture below.
The purple marks the low of the season and then any additional draws after a build. The orange is opposite and marks the high of the season, along with any additional builds after a draw.
In the right bottom corner are the estimates for where I think storage will end 4.14Tcf to 4.29Tcf. Those numbers are close to the estimates working gas storage number that was released on 7/24/2013, although there is a 9 month lag.
In 2012 when storage reached 3.929Tcf we saw an intraday low of 1.902. Working storage was closer to 4-4.2Tcf. In 2011, we saw a low of 3.086 intraday which seems reasonable and within reach in November or December.
If anyone would like a copy of the excel file, please let me know. The information in the file was downloaded origianlly from EIA. I kept the original data in a tab and then created a new tab that I could make estimates and calculations.
Based upon my outlook, I decided to trade a risk reversal. I sold NG December 2013 $4.00 calls for 0.128 and used a little more than half the proceeds to buy NG December 2013 $3.25 puts for 0.066.
At some point, I will look to sell the $3.00 puts (to create a vertical put sperad), especially if we move down dramatically and I can sell the $3.00 puts for the price I paid for 0.066.
For traders that only trade stocks, I am short October UNG calls and looking to buy puts when December options are available.
I have exited the December $3.25 puts for a loss. Since I have made my post, hot weather has persisted for over a month. Storage will still come in high but will not be at risk of storage being full. I still maintain my short December 4 calls and am comfortable with that position.
ReplyDeleteI have exited the December $4.00 calls for a gain. The overall position was a gain but was not worth the time. Granted, weather has gone against me almost from the start so I am happy to not lose money, although there were times when the trade was in the red.
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