Joshua Heller is a personal friend of mine. I’ve been trying to drag him into helping me for a time now. I’m going to start including comments from him as often I as I can keep his attention!
5/13/20 around 3pm Est time.
Based on Price action at 3pm EST, it looks like margin calls have forced the last of the ‘weak hands’ out. NGN20 July low was 1.802 on 3/18 vs 1.838 low today and has already bounced back to 1.874 as I write. NGM20 June has already made a new low today. One of the things I like to look at for trading purposes is the straddle price ATM (at the money), in this case the closest to July is 1.85 and trading at a price of approx 0.34.
Since I’m bullish, I would look to sell put spreads below 1.50 at a minimum as this would get me below the low from June (so far). An even safer trade is 1.5 straddles away (0.34*1.5) 0.51 or approximately 1.35. That is where I would choose to sell puts. Note this is for summer trading, in the winter I would want to be more than 2 straddles away and would be especially careful on the upside. 1.35 / 1.20 put spread is currently trading for 0.011. Including commissions of $3 per contract, this trade would net $104 vs risk of $1396 or 7.4% if the trade expired worthless in 43 days. When I saw some strength, perhaps closer to 2.04 (200 SMA) and up to 2.10 is where I would try to sell a call spread to capture both sides.
5/14/20 update: 10:45 Est time
NG price action likes the storage report at 103. It is slightly bullish to estimates 106-110Bcf. I would continue to sell NG put spread like the one yesterday, I consider any spread above 5% worthwhile due to thought process of compounding on an annual basis (astronomical). Could potentially also move the strike up from 1.35 / 1.20 to 1.40 / 1.25 if someone felt the return from 1.35 / 1.20 is now too low. I still want to see July rally to 200 SMA around 2.04 (currently 0.15 away) before I would be interested in writing a call spread.
To be continued…