Morning Thoughts – Time to reduce?

My positions as of pre-market 1/4/2021

It’s 2021, woo woo. Ok, it’s really just another day. My account balance is up! This is nice. Though it appears I shouldn’t have sold a call. This is alright. I half expected this.

First off, weather is bullish right now. and…. well… never expect bullish weather to just linger. once or twice a year it gets cold and stays cold longer than expected. Same with bearish weather. Generally it swings wildly between the two.

Prices got unbelievably low and I got in. I’ve now gotten what I wanted ( a dollar rise in UNG), it’s time to look for an exit. Had I not sold that call to make my UNG position a covered call, I would be selling UNG right now at $9.5 and continue to hold UNL for a chance the market would push higher.

re-phrase – had not sold a call I would exit UNG now at $9.5. with $1 gain and would now feel comfortable to continue to hold UNL. In fact, I may also reduce UNL back to 50 shares. Now I would wait until market open to get a better price; pre-market pricing for UNL is horrid and will gap up at market open as long as gas prices hold.

Fundamentally, I think prices are right were they should be. The market has decided on this range and it will stay in this sub $3 range until storage shrinks to at least match the 5 year average. Think of it this way, there is no need for demand concerns until there is some kind of storage threat. As long as there is plenty of gas in the ground and production is still relatively strong, buyers can be picky, keeping prices low. Weather will continue to steer pricing within the already set range.

Now, since I have sold a call. I can take my 20cent gain and get out by Friday, or I can roll the call forward. I could also roll the call higher, but I’m not sure prices will rise more, so that is not a path I want to take.

I entered the trade at $8.41/share. At $9.15, I sold a 9 strike call for 1/8/21 expiration for $0.35, limiting my max gain to $9.35. It also gives me a small buffer down to $9 and still collect the $0.35. for a $9.35 exit. Of course max gain.. meaning I can’t make any more than $9.35 on this trade. If I roll another week out, I can expect roughly another 10 cents in premium, clearing my original goal of $1 gain on the UNG trade.

I do believe the price could continue a bit higher this week. If that does end up happening, the spread between 1/8/21 and 1/15/21 expiration may shrink a little, but being that I’m holding 1/8/21 expiration, delta will be very strong at this point and I want to hang on to that more than I want to scrape in another “potential” 10 cents… For now.

I’m going to hang on to maximize my gain on UNG. If UNG starts moving back toward $9, I will dump the entire trade and reduce UNL back to 50 shares.

If UNG holds around $9.5 or higher, I’ll hold and consider rolling out to 1/15/21 for the next 9 strike call and go from there. I want to stay as close to expiration as possible in case I need to exit the trade.

Seems like I’ve rambled a bit… I’m moving between this and real work so it’s not so easy to keep my thoughts just right.

My plan:

  • Hold UNL and UNG right were they are for now
  • If prices rise, I will continue to hold UNG and maybe reduce UNL as it approaches $8/share
  • If UNG falls back below $9.2, dump it and reduce UNL back to 50 shares.

If prices seem weak, I want to dump and kinda press the reset button before my account goes back into the red. By reducing down to only holding 50 shares of UNL, I have much more freedom to wait and dial back up at any time. This is a good moment to protect. The market has established a range that will continue to be the case until storage swings from a surplus to a deficit. This has proven harder than first suspected. But it does every year. Every year the market (and myself) gets swept up in the idea of a strong draw season and prices spike. Then reality sets in and brings prices back to where they should be for the time being. Anyway, I think I’ve explained my thoughts in a round about way. Good Luck


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