Morning Thoughts – Oldinvestor

First thing. I missed the drop in production yesterday. This is usually a revision thing that happens around the end/beginning of the month. So most are expecting production to bounce back quickly (a day or two normally). Also, if i didn’t mention yesterday, weather shifted to being more supportive of a bullish move. LNG kinda stole the spotlight, and I jumped on the bandwagon there. It doesn’t matter the categories; the market finally decided sub $2 gas was too low and the sentiment finally snapped. I will say that the move yesterday could have also had a factor of stops being triggered. For this reason, the market could snap back a bit. I do feel like the market is ready to stay above $2, at least for October contract and beyond. September contract may not see $2 again.

I don’t try and predict pricing, I only try and hang on for a direction I think the market is going to head for. I will say that October pricing held at $2.4 in April/May, while the storage surplus was building. The storage surplus do the 5yr average is a bit higher now, but is on the decline. Though October contract is this much closer to expiration, would it not be arguable that storage is going to be more in check (lower vs 5yr average) at expiration than in May, making October potentially worth $2.4 again? I would think that October is a better deal now that the market looks to be headed toward reducing the storage surplus. And the history of October pricing is some indication of what the price could be worth. October pricing fell into the $2.05 range just before this move to $2.4. The balance between supply and demand has changed 5 times between the first of the year and now; right now demand is showing it can outpace supply by a large margin. Whether is be production lacking, LNG strength in creasing, or weather. The combination has help the market change the mind of big players this week. As for $2.4 October gas? I might think that to be the top of this range if it moves higher this week. $2.4-$2.5. Production number revisions will help make that decision.

As for my trades

UNL – holding 60% in with an average of $7.4 and considering another reduction. soon, winter will only be 30%-40% of the influence of UNL and summer of 2021 will be influencing the price. I think 2021 is under priced and will come up, this is good reason to continue to hold UNL. No rush to sell.

BOIL and KOLD covered puts. I exited my KOLD trades, and picked up another BOIL covered put.

BOIL covered puts as of close 8/3/20
HIstory of KOLD 55 put, which started as a 60 put

So I didn’t make note of my 55 strike put in my spreadsheet and had forgotten that I initiated that trade with a 60 strike put. Later I rolled to 55 strike, then covered the put and waited 3 days to re-short, scraped a small profit, and the bulk of the profit came in with a large directional move in KOLD shares. I made a little more than $1800 on this trade. I don’t think I could have managed a covered put any better than this. It lasted just under 2 months, with roughly a $4000 margin requirement. This trade would be a 46% gain against margin, but would be an 18% gain against $10,000 reserved for the trade. This trade was exceptional, and may be my favorite trade for a while. Granted, had I just shorted KOLD directly, I would have made even more, and on similar margin. I wouldn’t have been as well protected, and I wasn’t counting on KOLD moving to sub $40 this soon. I only needed $55/share KOLD by 8/21/20 to make this amount. I would have actually rolled the put out again, had the market stayed drifting where it was. I will be looking to re-enter a similar trade soon if the market will bounce back in the next couple weeks. For now I’m going to wait out the week and see what happens. Good Luck