The Heller Angle – June 11th, 2020

Fundamentally I continue to be bullish in all time frames, although most cautious in the short term (1-6 months). I think the market has already priced in weak demand and producers are shutting in production or deferring as much as they can into higher priced months in the fall. I am most concerned with short term demand as many places in the US are seeing a rise in Covid-19 cases again. There are a lot of unknowns and how people react. How much of the population self quarantines? Do businesses get shutdown temporarily if there is a known case in their building, plant etc to slow the spread? Or (less likely in my opinion) are new lock down orders put into place in hot spot areas? I really do not know what is going to happen in a potential second wave of infections. This is why I advocate to stay conservative in my trading positions in the short term.

When my fundamental view aligns with a MACD cross over, I would normally get more bullish by writing put spreads closer to the market. I would also look for opportunities to buy call spreads if I could get the risk/reward right in my mind. I might also go out past 60 days.

Today the MACD crossed over for the first time since early May. While no indicator has a perfect batting average, MACD signal has worked for me when pairing with my fundamental view.

The 1.90 straddle in NGQ20 is trading for just under 0.31 as I write. I want to be at least 1.5x or approximately 0.45 away so I am looking at credit spreads at 1.45 or below. Here is my trade. Sell the August NGQ20 1.45 x 1.30 put spread for 0.010 (filled). I also put in an order at 0.011 to see if I can get hit overnight with any drop. Otherwise, I will probably move this to 0.010 tomorrow.

Even though I am not putting on an aggressive bullish trade, let’s look at a long call spread setup to monitor and learn from. Looking at the chart again, I see potential resistance at the 50 day SMA or 2.073 as well as stronger resistance at the 200 day SMA at 2.215. Another thing I look at is the at the money call which is approx 0.15 (or 0.5x straddle as the other way to look at it) so that I don’t pay too much premium. If I am buying premium, I also want to receive a minimum of 3x max profit as some trades simply will not work. With a 1.90 call at approx 0.15, I am looking at the 2.05 call for 0.094 while selling the 2.20 call for 0.050 for a net premium of 0.044. I really like this trade setup as I like buying the call below where I think some resistance could be while also selling a second call to offset some of the premium at a second resistance area. I am using bid / ask middle but I might need to pay 0.045 or 0.046 to get this off in real life.

Click here to view all of ‘The Heller Angle’ posts