Morning Thoughts – Oldinvestor

I made the mistake of reading work email early this morning. There is a problem when a speed on a servo drive, but the drive is being told to run slow so I need to go take a look at this soon. Sounds like a gremlin problem. You know… The kind everyone is having trouble solving.

Extremely bullish weather and pipeline disruptions are great, but both temporary. This should alleviate some storage concerns though for now. Production did still ramp up just before the pipeline issues, so look to be stepping right back into that soon enough.

My positions

UNG – 80% in with an average of $7.4 and back to waiting

KOLD -short 100 shares and short 1 put

Ok, so I rolled my KOLD put from 7/17/20 to 8/21/20. I rolled out and down, meaning I bought back my 60 strike put with expiration of 7/17/20 and sold a 55 strike put with an expiration of 8/21/20. I’ll show the whole thing here.

KOLD covered put trades

Originally I sold my first KOLD 60 put for $8.5. So if KOLD is at $60/share or higher on 7/17/20, I make max premium on the put and a little on the share price as well (because I shorted higher than the current price). Because I have rolled down the put, the underlying price can fall, making me more on the share value, and still make some on the 55 strike put. I could have waited to roll this put and made more in premium on the 60 strike put. If the underlying price moves quickly away from this range near $60/share, then the premiums start falling quickly and the roll isn’t as advantageous. To understand this more, you need to learn about intrinsic and extrinsic values, and how being “near or at the money” can help with maximizing selling premiums. To some of you, this concept is already understood and that is great.

So I had I rolled out to 60 strike put with expo of 8/21/20, I would have gotten more premium than 55, but because I rolled down to 55, I have more run on my short share position to make more. Making more money with premium is good too, but you must keep in mind a covered put limits max profits by what strike price is chosen. So by rolling down, i open up the potential to make more if the underlying value will fall. The put premium comes in by the underlying value staying elevated, and decay making me money over time. When the stock price falls, the shares make money, but both can only make so much and I’m really betting that I will make more money on time decay than on a big move in NG. Since KOLD is near the top, and it kept alive by contango, I feel it’s a great time to scrape decay and keep rolling, anticipating a slow move lower at some point.

KOLD covered put position as of close 7/8/20

So this shows that I could buy back the put right now for $8. I sold it for $9.66, so $8 is a little far fetched, I probably would have to pay more to buy the put back. Also what is not shown is the difference in my original sale of the 60 put for $8.5 and buying it back for $6.9, which I have scraped a profit of $1.6 or $160 profit minus roughly $1.3 for commission. Lets assume I had to commit $10,000 to this trade since I need to have enough to cover KOLD moving to $100/share. Remember I’m short so if it goes up, I need to be able to cover that. So in 1 month I’ve scraped 1.6% against that and I could cover the rest for more of a profit, but that’s what I’ll count so far made. If I could possibly make 1.6% every 30 days against a trade, I’ll have made roughly 19% a year on that trade. I should find a better way to display how I’m tracking my profits and position. I really like this trade and will continue to track it here. I’ll skip the long drawn out explanations in the future.

That’s all I have time for right now. I have no plans for UNL right now. Also; now that I’ve rolled KOLD, I will be in waiting mode for that trade as well. I’m sitting tight. I do have 20% of my funds in my example account to trade and will hold on to see if production goes back to crushing NG prices again, and probably buy UNL or even UNG. It will be a while though. Good luck

Oldinvestor