Morning Thoughts – Oldinvestor

KOLD vs BOIL over the last month

I think it’s a good idea to start shorting both KOLD and BOIL. I do not have a recommendation as to how much, that is wildly inappropriate. I was about to short 100 shares of KOLD in my main cash account about a month ago at $60. I got 100 shares so I could sell a put against those shares. I have not been able to get any more shares of KOLD to short from Schwab since that day.

KOLD trade history

As of yesterday’s close, I’m ahead on both the shares and the put. So this trade has worked out well. I’m in the process of trying to roll this put out and possibly down, as in buy the current put back and sell a 60 strike or lower put for 8/21/20 expiration. By rolling out, I raise the amount of premium that can be sold for that put. By rolling down, I sacrifice the amount of premium I will make if the share prices ends above the strike price; but this also allows me to make more money on the direct short. The primary reason to short the shares of KOLD is to make money on the decay over time. I want to keep rolling the puts down over time so that I’m able to potentially make money on both the put premium and the decay of the share price. I understand the whole dynamic well now, but it is very difficult to explain. It may be better to search “covered puts” to gain a better understanding of this. I will keep this trade alive as long as the underlying value doesn’t get too far below my strike price.

I particularly like covered puts on KOLD because NG prices are at/near bottom to give a short position in KOLD a higher win percent. I like selling puts against my KOLD short because contango should keep the trade alive longer and help to actually keep KOLD from decaying too fast. If the underlying price of KOLD move in my favor too fast, of course, then not enough time will be allowed to make money on the decay of the put premiums. I still make money, and I might even get assigned and collect profits early… I want to keep the trade alive by collecting premium from the puts and rolling them out/down so I can keep generating “income” from this trade vs trying to a make a quick profit and getting out.

The reason I think it could be a good time to short both BOIL and KOLD is the market is still in a bind with LNG demand lacking. I’m not really going to short BOIL at this point because any news of LNG recovery is going to give natgas another boost. Europe is starting to get their storage under control, and if LNG increases any, US storage will not be feared as hitting max capacity. I’ll sit tight with my UNL and my KOLD covered put.

As for gas fundamentals, production is confirming a bit of a recovery. I cannot say from what part of the country, but I would guess somewhere in Texas. It is possible the Bakken has been hit so hard, maybe they are due. Just keep an eye on that South Central storage figure this week. The overall US figure could beat the 5 year average and South Central still suck. Just be aware of that. Common sense tells me that South Central can have some influence on the market still if it continues to suck, but that influence will break if storage in that area is relieved.

I can see how the market would get on a bit of a run here, it is due for that. I remain paranoid as usual.

My position

UNL – 80% in UNL with an average of $7.40 – order placed to reduce to 60% at $7.95

I’ll keep my same order to reduce my position at $7.95. It looks as though the market is leveling out the curve. Aug/Sept/Oct/Nov pricing is up while the rest of prices are in the red. This isn’t so helpful for UNL, but things will all even out in the end. As for KOLD. I’m short 100 shares and short 60 strike put. I would like to roll out to 8/21/20 expiration fro $6 credit or maybe settle for $5 credit and roll out and down to say $58. I may have missed my chance since KOLD is currently trading closer to $54. We shall see. Good Luck

Oldinvestor