Morning Thoughts – Oldinvestor

The overall supply picture never really changed all that much the last week. Canadian imports over pipeline increased to make up for some of the disruption in the US. This is still a large disruption, one that should be resolved this week. As Josh Heller mentioned to me, we could be seeing summer draws on storage if LNG were to swing back to full capacity. I have see 1 summer draw on storage. I think it was 2016 and gas moved $1 higher in a matter of weeks, and stayed there.

Thinking back, I remember reading, watching news of the oil/gas markets in 2014/15 when everything was crashing, but I wasn’t trading NG or ETFs. I was not in tune with how the market felt heading into a drastic price situation like now. I started trading UGAZ after things hard already started to turn around. Gas supplied had yet to get on the decline, but the market had decided it was time for relief. So it was easy to be on the long side of the market in 2016. As for right now, there is still so much gas, we’ll only see short swings above $4 NG.

As for the current market, still getting temporary relief from a pipeline shut-in and a boost from weather. I’m still long on price but very pessimistic about Natgas due to the ability for producers to quickly turn on more gas. Canada has shown they are good for an extra 1Bcf/d in an instant. Many areas of the US, we know are good for more; few, if any areas are bottle-necking due to pipeline constraints. I’m still double spacing between sentences.

And there’s a call to some more equipment that no one else can seem to get running.

I took 3 calls and… nevermind

My positions

UNL – 80% of funds in my example account invested from $7.4 – waiting

My BOIL and KOLD positions as of close Friday

My BOIL and KOLD positions as of this morning

Ok, so I’m shorting KOLD with a covered put because I like where the price of Natgas is for scraping in premium from the short put. I’ll continue to roll this put out as long as I believe natgas will continue to kinda hang in this range. Covered calls/puts are generally for collecting premium against a slower moving target. I like the covered put because I will eventually make good money being short the shares of a leveraged ETF from decay, and collect premium while I wait. I’ve found it may be more advantageous to roll the put when the underlying swings near the put strike price vs waiting for the put to expire. If I wait too long, the roll is not as valuable in premium difference between expiration dates.

As I have done last week, I also rolled the put down; leaving myself more room for the underlying shares to fall and make money on the short share position in KOLD.

On to BOIL… I think I would be considered quite paranoid if I were to take that 90 strike covered put just for the premium. I will make a small amount on the premium of selling a 90 strike put for a $2 max gain, but I could have sold a 60 strike put, still have stayed protected and made like $6 in premium. I’m holding out for another reason.

BOIL and KOLD are small players in the ETF world. They are no where near the popularity or liquidity of UGAZ/DGAZ. This means it’s also hard to get shares of BOIL or KOLD when the prices is more desirable to short. As I’ve experienced lately with KOLD; I can’t seem to get 100 more shares to short above $65 so far. I would say…. I’m still double spacing between sentences. I would say that I’ve gone to the extreme, but I’m well protected with my 90 strike covered put position in BOIL. I protect my BOIL short if the share price moves strong against me. I have a small cheat sheet that I use to project roughly ( very roughly) where the price of BOIL/KOLD/UNG will land if NG moves to certain price.

Price Calculation sheet converting NG prices to possible ETF prices

This is a screenshot of potential price projection of ETF prices when NG prices move to a certain area. Basically if Sept NG would have to get near $3.25 for BOIL to go to $90. Also November NG contract would have to get near $4 and Jan21 would have to go to nearly $5 gas. That’s pretty extreme. You’re seeing a screenshot of my sheet, it’s just simple math, if NG moves .25% higher, then I assume BOIL moves .5% higher since it is 2x the % movement. It is not perfect, but to project this far out is too hard anyway since BOIL is going to roll forward as well to future contracts over time. This is why I’m projecting the three contracts that BOIL should roll to over time. I’m not saying this is where the prices will land. I do believe I’m giving myself ample room to short BOIL at this point.

So i chose a 12/18/20 expiration, this because I want NG prices to jump early winter. If nothing happens I make $2 and cover the cost of the interest I’m paying for the short shares. If the price jumps by expiration, I can choose to roll the put or let it expire. If I let it expire, I collect $2 for extrinsic difference between my short shares and the short put. Beyond that, I have the option to enter the market with a short position in BOIL wherever the price is at when the put expires. So if BOIL goes to $55 by 12/18/20, I collect premium that can go toward my short position and it’s basically like shorting BOIL at $55. Why don’t I just wait? Because I might not be able to get the shares at $55 to short. The option will be mine when I get there and I can roll again if I think the market has more room to move higher.

I’ve got to go. I hope that was a half clear explanation and if you think I’m crazy, I’m good with that. All my positions are in wait mode right now. Good Luck