Morning Thoughts – Oldinvestor

Go check out this video

I I barely follow this to its full capacity. We all need to learn every more about options, especially futures options if we continue to trade NG. I was able to skim the video. I see a new trade for myself called a Jade Lizard? selling a call vertical in combination with selling 1 put. looked like the call spread was OTM for Dec contract at the time of the trade and the put was $2.5, that may have been ATM at that time. This looks to me like a more calm trade. I need time to look at it further. This reminds me of what I should have done when I sold TVIX back in March? I should have bought OTM calls that were super super cheap at that time. It would have protected my short big time. Of course I would have had to to do this in UVXY instead because TVIX doesn’t have options, but I could sold TVIX and bought UVXY options.

Thoughts on gas. The shit is really hitting the fan this week. It may not be long now until well see a dump and jump. Like maybe a hefty gap down in UNG followed closely by a reversal trend in the market. I can’t say prices will do this soon ( as I would like to see happen)… Something I learned from a George Kleinman book I read, of course you’re supposed to wait for it to happen, then get in. The market will gap near the bottom of a trend and this gap can commonly precede a reversal in the market. Like a last ditch, going out of business sale, that shifts to que buyers, just in time when fundamentals are finally ready to be in favor of bulls. The reason to wait for the gap and even the reversal, because we don’t know how much more downward pressure there is left in this market. Especially for those in ETFs. I’m glad I chose to not go near UGAZ.

My UNG position has my account balance down like 2% to 3% overall from inception of the example account. I’m a little upset I’ve wiped out a nice gain I had, but life could be far worse, and I’m surviving one of these worst downturns in Natgas history, in an ETF of all things. I’m gonna hang on a little longer before I get interested in buying any more.

As for shit hitting the fan, I’ve heard a little about demand recovering, but a lot about LNG still in the hole due to massive amount still on the water (in a boat). LNG feed gas has just posted a new low. Lots of chatter how production probably isn’t going to decline much further. Banks are just now making the decision to cut off bad debt.

This is probably the best news. In 2015ish, banks kept supporting E&Ps, because it was a true V shaped recovery for oil and for gas. Instead of letting producers fail and cutting them off, the banks propped them up for maybe a year in hopes of getting loans paid back on a delayed schedule. This seemed to have worked for the most part. I can’t say my next statement is responsible for the entire situation in natgas; by propping up natgas producers, they supported the glut in supply. Producers suffered just enough to slow natgas production just enough for demand to barely catch up and help prices recover to a profitable range.

LNG saved all their asses for like a minute… Again, since producers didn’t go down the tubes, causing major cuts in exploration and drilling, the market stayed well supplied enough for LNG export prices from the US very desirable for both buyers and exporters.

Up to winter of 2019. The order may not be exact, but banks prop up producers; producers survive well enough to start paying back banks and go back to old habits of growing fast (based on how much credit they can get from the banks). Prices never get too far above $3, with the short term exception of winter 2018/19. LNG exporters are excited since prices in US is staying low, making life very easy for them to sell LNG to Asia and Europe and making expansion look desirable to investors. Producers are soo good at getting back to work, they over supply the market again, and finally the LNG market starts signalling it is to capacity. US natgas pricing had already been falling in 2019, reminding producers they have overshot. Producers begin to feel the pain a bit and start dialing back on new exploration. They’ve all gotten so good at producing these horizontal wells and have been over expanded due to massive amounts of money poured into it all from banks/investors, here we sit. An oversupplied market with our fingers crossed that LNG will continue to expand that last little bit to finish out 2020, and production is softening a little bit. Then 2020 begins and the pandemic hits….

Had these banks not practiced the idea of extending loans back in 2015, many more shale producers would have failed, delaying more drilling and completions activities, causing prices to spur more, maybe keeping LNG exports from growing so fast and not over supplying the world with natgas… That’s a long run-on sentence, and quite the theory, I know. But it’s got to be at least 10% true.

Anyway, so to hear a statement like : Banks Cut Shale Drillers’ Lifelines as Losses Mount This is music to my ears.