The Heller Angle – July 7th, 2020

NG is up significantly from the bottom, so much so in fact that it touched the 50 day SMA in both August NGQ20 and September NGU20 much faster than I thought. As I said in previous posts I am interested in slowly selling credit spreads as we get to the first SMA on the call side. I am still very bullish in the medium and longer term, but this gives us the opportunity to slightly balance the position and ideally pick up option premium on both sides.

Remember that 5 days ago NGQ20 straddle prices at 1.72 were 0.24 when I sold new put spreads. Today with NG at 1.88, straddle prices are still at 0.24. The percentage of 0.24 / 1.72 (13.9%) vs 0.24 / 1.88 (12.8%) is obviously less but premiums have stayed closer in value due to an increase in volatility. I haven’t talked about volatility at all in my posts but historical volatility is shown in the charts I post. Historical volatility has more than doubled since it bottomed 2 weeks ago.

Walking through my usual trade setup, I like to sell credit spreads with a width of 0.15 with the first leg at 1.5x the current straddle price. With NGQ20 at 1.88, I see 1.89 straddles trading for ~0.24. 1.5x this price would equal 0.36 + 1.88 or ~2.24 for the first leg. The current bid / ask for 2.25 x 2.40 is 0.008 / 0.010 and I have placed orders to sell at 0.009 and 0.010. Side note, I have no idea why there are strikes at say 1.89, 1.72, and 1.67 for example but otherwise at 0.05 increments. If anyone does know why, I’m definitely curious and would love to hear from you.

As far as the chart, the 50 day SMA could also stop the rally like it did today. 2.00 NG might also be a psychological barrier to the market. The 200 day SMA should help protect and slow down the rally as it gets to 2.15. Lastly, there is plenty of congestion from the recent highs in April and May at 2.20-2.35ish. I like the trade here but momentum is still increasing on the MACD. I am selling these slowly and might sell more later this week depending on the price action. Also, for those that are more conservative, one might avoid selling the NGQ20 2.25 x 2.40 and instead look to sell September instead so that the trade can be higher than the most recent highs.

Walking through my usual trade setup, I like to sell credit spreads with a width of 0.15 with the first leg at 1.5x the current straddle price. With NGU20 at 1.95, I see 1.95 straddles trading for ~0.35. 1.5x this price would equal 0.52 + 1.95 or ~2.47 for the first leg. The current bid / ask for 2.50 x 2.65 is 0.009 / 0.011 and I have placed orders to sell at 0.010 and 0.011. As can be seen on the charts, the first leg 2.50 is above the most recent high of 2.499 that was rejected with the red candle on 5/5/2020.

I sold both August and September call spreads but my deltas are still long. I sold a small amount, enough that it makes a difference but with the ability to add to the positions later. Lastly, I had some internet problems this morning so hopefully anyone following along and watching the 50 day SMA numbers got a better price than me.

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