The Heller Angle – June 2nd, 2020

As I’ve posted previously, I am concerned about the short term fundamentals of NG while being bullish in the medium term. After watching the market for the week (sorry it took me a week between posts!) we can see that NG supply increased by ~2Bcf while LNG exports also declined by ~2Bcf as well. It also seems like LNG exports will get worse before the get better in the fall which feels pretty far away right now.

I’ve been trading conservatively, in part due to oversupply from a warm winter worldwide as well as risk from Covid-19. In previous years, I tend to write credit spreads at ~1.0x straddle prices. Whereas this year, due to my perception of higher risks, I’ve been selling ~1.5x straddles away.

I currently have NGN20 July put spreads sold as a credit and I never was able to sell offsetting credit spreads as the market has just not rallied enough. Where I’m comfortable selling call spreads, the premiums are not worth the risk in my view. That is okay in my view, as I will wait until either my view changes or the market comes to me. With July expiration starting to get close at 23 days away, I am now starting to look at NGQ20 August put spreads.

Below is a chart of NGN20 of what I am looking at. I try to keep my chart pretty simple and am just looking at the 50 and 200 SMA along with MACD and historical volatility. Note that I am looking at NGN20 vs just NG which would be the continuous contract. The MACD indicator due in part to contango or backwardization can sometimes skew MACD and historical volatility indicators.

As I said above, I am still in the bullish camp for fundamental reasons. Even though NGN20 broke below support at 1.80, I see that selling is seeming to reach exhaustion. MACD while still below the zero line is starting to climb. Due to my fundamental view and this price action, I sold today August NGQ20 1.35 x 1.20 for 0.010. As MACD climbs above the zero line, I plan to add to this position again.

As far as the SMA 50 and 200, this is where I would be looking to sell a call spread if we reached that line. NGN20 is at 2.006 currently while NGQ20 August is at 2.086.

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