Morning Update – April 28, 2020

“LNG is being as hard as oil”

https://oilprice.com/Energy/Gas-Prices/The-LNG-Market-Is-Imploding.html

I saw this article headline yesterday; it has some good info. Not breaking news, but good info.

My Positioning:

UNG – 25% in with an average of $13

USL – 13% in with an average of $11.41

I do not plan to add or reduce today unless there is a drastic move in one direction or another.

I wanted to share an options trade for anyone interested. I’ve already be selling covered calls, and HFIR had shared one last week so I bought 100 shares of DBO and sold 1 call to see how it would do. I’m going to wish I had taken on more, but this is good for learning. I remember now that I had mentioned this trade late last week. I did take it in my cash account.

DBO Covered call position
Entered DBO trade 4/22/2020

So I bought 100 shares at $5.54 for a total cost of $554. I sold a $4 call for $1.9; after commission I get a credit to my account for selling this call of $189.35 (we’ll round down to $189).

I look at this trade in two ways. 1st – I’m protecting my 100 share position down to $3.64 ($5.54-$1.9=$3.64). Since I get a credit of $1.9, I can apply this to the share price and treat it as protection to my position.

The 2nd thing I look at is max gain. Because I sold a call, if the underlying share price goes higher, my call loses me money. Now I still get to collect the left over premium, or extrinsic value after the difference in my purchase price and the strike price. I’ll attempt to simplify this here.

  • Call Value when I sold it – $1.9
  • Share price at purchase – $5.54
  • Strike price – $4

The only profit I can make is the difference in my share purchase price of $5.54 and the strike price of $4, then subtract that difference from the premium. $1.9+$4-$5.54=$0.36

So all I can make is $36 before commission, but this is almost 10% against the value of the trade. I did pay $554 for the shares, but got a credit to my account of $189. So the net cost is $364.65. so after commission of $0.65 when I sold the calls and again when the contract expires or I buy it back for maybe $0.01, I will make around $34. So $34/$364.65=9.32% of a max gain. That’s not bad for holding a trade for 23 days.

Back to the part about selling $4 calls. I could have sold $5 calls and made more money as long as the price of my shares stayed above $5 at expiration and maybe have made more like 15% on the trade. I chose $4 in case the market tanks and I can still make 9.32%, even if my share price falls to $4. That is a good deal. There is still risk, because if the share price drops below $3.65, I start losing more money in the stock than I collected in premium.

Covered calls are a good option trade from me right now since I’m already buying ETFs anyway. These calls are helping protect my investment tremendously. I can’t advise anyone on covered calls, but I might be able to help find answer to questions you might have. Good Luck

Oldinvestor

Something I didn’t mention, the premium decays over time, because as the contract that I sold (5/15/20) gets closer to expiration. The contract is worth less because there is less of a chance for the price of the stock to go up. This decay is making me money faster than the decline of the price of the shares. I didn’t predict this or plan for it; it just happened this way so far. The price of DBO could still fall hard and cause me pain, but I’ll rest easy knowing I only traded $500 worth and that my position is protected down to $3.65.

Morning Update – April 27, 2020

Capitalism is dead. We pay too much for houses, land, businesses. We operate purely on credit, and when shit starts failing, instead of operating on cash, just go get another loan. After all, the government will forgive it, and the rest of us will pay for it. Either that or inflation will keep the rich, rich, and the rest of us will continue to fall behind. Because this thing the government is doing is keeping houses, land, and businesses out of reach to common people.

Part of capitalism is taking the risk and failing. When someone fails, that opens the door to someone else. Presumably someone smarter, or possibly just more conservative with their money. The price of commercial property becomes a good enough deal that maybe I could buy some, in hopes to start a business. I’m not against government assistance, until I’m paying for a system that is just making it harder for me to start something of my own.

It’s happening all over again. Banks won’t be able to handle all the foreclosures, so they drag it out, never really allowing housing prices to fall back to reasonable levels, or bargain levels. This keeps prices far too elevated in order for the banks to recover their money faster because if the loan value never decreases, the loan will get paid in full by a new buyer, when the market doesn’t offer a better deal because everything is kept afloat. And they are using your tax money to do this.

Anyway, I’m buying UNG now, at $12.7

my positions:

UNG – 26% in with an average close to $13

USL – 13% in with an average of $11.41

I want to say we’ll see some production decreases soon; if not, I’ll slowly ride this down some more and add again. I’m slightly interested in UGAZ, but not going to do it yet. I’m still convinced Texas has too much natgas. We’ll know soon enough. I’m supportive that natgas will not go to $1.25 for now. The closer we get to summer and it remains colder than normal temperature wise, I start leaning toward a harsh winter. Solar minimums… Maybe global warming is real, but only able to warm the globe when we are burning 100MMbbls/day. Maybe the earth is more efficient at recovery than we give her credit for.

Did I mention I added to UNG, back to 26% in. I’ll add again if prices drop closer to $12. No target to exit yet. Good Luck

Oldinvestor

Keep an eye on this chart.

Natgas Inventory weekly change vs 5 year average

Morning Update – April 24, 2020

I grow more cautious of this potential breakout each day. I think they key is Texas, and they have ample amounts of gas being flared. I don’t know how much, but we’ve heard about pipeline constraints for over a year. Even if oil is cut back and regional pricing in Texas recovers, that will be all it is. Regional gas prices will recover and overall gas supply could remain higher, even as oil production falls. Some associated gas will get shut in, but we still don’t have a good idea of true capacity. Many of these oil wells are also reaching latter life stages and produce a higher ratio of gas to oil (from what i hear).

If I were trading UGAZ (which I’m considering getting back into with a small amount soon), I would be all out right now. Amidst all the chatter and bullshit with USO, I still have quite the confidence in UNG. Considering Oil has moved to serious extremes, USO has survived, which is more than I can say for XIV. I will continue to hold a little UNG, even if it does suffer from a small amount of roll decay. I need to update (possibly correct, not sure why) my spreadsheet for my UNG trades. I was looking at it, and I’ve gotten quite good at trading a losing ETF. I started trading UNG at $19 and somehow I’m making a profit at $14. It seems I’ve done nothing but learn to trade the losing side for the last 4 years. It’s not something to brag about, but it lifts my spirit to see that I’ve done this well in this market on the long side.

Speaking of USO

USL (teal) Chart with DBO(blue) and USO(purple)

I wanted to show this comparison between USO, USL and DBO. It appears all three ETFs were on similar paths until prices started to fall and USO is leading the pack because it is (was) most invested in prompt contract, and the prompt contract for anything is usually makes the most extreme moves. USL funds are spread over 12 contiguous contracts, and DBO is invested 8 to 9 months down the curve in February of 2021. USL should be a little more exciting than DBO because a small portion is invested in prompt contracts. This could hurt sting though if even 5% of the funds of that ETF are invested in a contract that goes negative. I lean a little more toward DBO because it appears it has almost the same strength as USL, and without the current hazards of the prompt contract.

All this talk about Oil related ETFs, I’m still not so inclined to invest in them myself. I did sell 1 covered call against 100 shares of DBO in one personal account. Premiums are good and as just stated, it is invested in Feb 2021 CL contract. This puts it out of immediate danger and oil will have to continue in quite a big way in order to hurt much in DBO.

Crude Oil Inventories excluding SPR at RonHenergy.com

My reason for still being super cautious of Oil is this. Storage isn’t quite full, but with demand still being at record lows, like 30 year lows, I don’t know….. Few airliners in the sky, probably 0 cruise ships hauling anyone but crews around, and far less people travelling to work, employed or not… You get my point. Storage is filling at an accelerated rate. Even Feb 2021 prices could fall another 12% fairly quickly. I say 12% because thats about the extent of protect my covered call adds to my 100 shares of DBO. Well I sold a $4 call for protection to $3.67 on my shares. Ok, I’m beginning to ramble on.

My Positioning:

UNG – 25% invested with an average at or better than $13.28

USL – 13% invested with an average of $11.41

I actually have enough money in my example account to sell 1 covered call against DBO, I would need to apply for options trading in that account. I’ll think about that. As for UNG, I’ll keep my same strategy. Placing a stop on roughly 10% of funds invested in UNG at $13.3 for the day and that is all. I am not interested in buying more yet and not really willing to let go of anything with that one exception. There is obviously a good chance this stop will get triggered today, because the price is already close to this figure. Just be aware I could be down to 15% of funds invested in UNG by the end of the day today. Good Luck

Oldinvestor

How much gas production does Texas really have?

Morning Update – April 23, 2020

I think very few people know what to expect with Natgas production declines, or at least a timeline. Demand is still about the same, with industrial being the only category lower YoY. This is a bit surprising to me demand hasn’t fallen a bit more.

In times of high volatility, I feel positions should be kept smaller in order to keep the position well managed. This is one of those times and I like to think, though I’m down a bit, I’ve done a decent job managing my positions. I’ve altered my patience to finally hang on to a small position for a longer trend and it doesn’t come. Not yet anyway. That being said, I think it’s time to reduce UNG further. I’m seeing gains in UNG and I feel the need to capture some of it. I feel the market has decided this price is good enough without some real evidence of weakness in production. Well my time has come, I have a call now.

I’m reducing UNG back to 20% at $14.15

My positions:

UNG – now roughly 25% in with an average of $13.28

USL – roughly 13% in with an average of $11.41 (I mistakenly said $11.75 before?)

Yesterday I placed a stop on UNG at $13.3, I will do this again today. I’m feeling that curse, you know the one when you sell and the price rockets up. If UNG gets above $14.5 today I’ll reduce again, down to 15% and it $15 I’ll be out. I do not expect this nor do I have any plans to add to UNG or USL at this point. USL is in sit and wait mode, more or less. Good Luck

Oldinvestor

Morning Update – April 22, 2020

Yesterday morning I stated I am not personally trading any oil related products. Let me clarify. I am not trading USO/USL/UWT/UWTI/CL_F/CL options. I was actually in a 5/7 put for CLM20 until yesterday. I got burned, but not bad. Anyway, I’m out of all Oil related ETF/ETNs in my own personal accounts, I will not be personally trading them for a bit longer it seems. I’m not interested in shorting oil here, it could react quickly to any news of intervention by the US government or OPEC linked companies.

The story is still the same; oil is falling hard, begging for more production cuts (forcibly). Natgas demand is still holding fairly strong. Industrial is the only weak spot YoY, and only by roughly 1.5Bcf/d right now. I have seen some news about LNG getting hit a little harder now. Cheniere is receiving more requests to cancel shipments.

https://seekingalpha.com/news/3562882-chenieres-lng-buyers-seek-to-cancel-least-10-june-cargoes-bloomberg

What really has my attention is waha gas pricing is near negative $5/MMbtu. This hasn’t been the case, and if wells in the Permian and Eagle Ford basins are getting shut in, whey would gas prices be going negative and flaring activity rising? This could be a indication that demand is being hit harder than expected right now. I cannot see another explanation for such negative pressure on natgas pricing in that area. This could be linked to LNG feed gas, maybe it is about to drop drastically.

For this reason I’m going to place a stop on 20% of my UNG funds at my break even price of $13.28. I would think if prices break for that area, there is a chance prices will continue to fall.

Current positioning:

UNG – 31% of funds invested – placing a stop on 2/3 of this position at $13.3

USL – 13% of funds invested – holding on for the ride to experience USL for the first time. (I sitll wouldn’t recommend to my best friend to buy this yet)

If UNG stops out, I’ll will be watching for news of more LNG problems or other demand cuts in natgas. I could also get back in quickly. That is still up in the air. Right now it is time to place a stop on UNG; one step at a time. Any changes, I’ll post here and twitter. Good luck

Oldinvestor

Morning Update – April 21, 2020

I’m out of USO. I personally will not be trading anything oil related until some normalcy is resumed by the market and the world. If living with the virus is the new norm, that is fine. Right now I”m out. With that said, I have sold USO and bought USL in my example account. I’ve sold my 20 shares of USO and taken a 3.3% loss on my account to get out.

I bought 10 shares of USL at 11.75. The required roughly 13% of funds.

I am still holding UNG. I think UNG will make up for the loss in USO. This is one of the most historic moments in time for Oil. There will be a moment when oil bounces, and hard, but I don’t wish to suffer until that moment. Some level of intervention was already sought out by global leadership (OPEC++++++ meeting) and prices for May contract are still negative. June is next and it is already spilling over to June. USO will be in June contract for roughly two more weeks. My assumption is that if June contract goes negative, USO will go to 0 and be shut off like a light switch.

My current positions:

UNG – 31% of funds from $13.28

USL – 13% of funds from $11.75

I do expect USL will tumble further amidst this crisis, and I wouldn’t recommend this to anyone right now. Don’t be in a rush to lose money.

I will be holding UNG to see if it will approach $15 and get out there. It is difficult to have much confidence in anything right now, but my highest level of confidence is that Natgas will continue a bit higher from this wave of Oil chaos. I will ride this USL position to see where it goes. I will not add to or reduce USL today. Keep in mind, this is a blog. I am just giving an example and not advising anyone to follow my actions. Good Luck

Oldinvestor

I just saw this, https://finance.yahoo.com/news/barclays-announces-redemption-ipath-series-001100135.html

The ETN trading under the symbol “OIL” is “suspending issuance” of shares. This is very “finance talk” type of article. My interpretation is that they are cashing out positions and essentially shutting down. Further down in the article they make the statement “may decrease or may cease to exist in light of the upcoming issuer redemption.” This, to me, sounds like it will still continue, but is a risk of closing. Either way, it sounds like something to stay far away from and it doesn’t give me any confidence in USO or ETF/ETNs as a whole.

Morning Update – April 20, 2020

Some decreases in production! As well with the cold leaving the northeast US, Canadian imports are back to lows. Demand is actually relatively strong vs last year, with the exception of Industrial demand being down 1.5 to 2Bcf/d. Res/Commercial still strong, Power burn still strong and of course LNG still incredible vs last year. I’m still a bit concerned LNG export declines will creep in, but… It should creep in slowly. Oil is crashing fast, this should help crush more production for more reductions in Natgas production.

My positioning.

UNG – 31% invested with an average of $13.28 (or a little better with my last sale of 5%, maybe a few cents)

USO – 10% invested with an average of $4.64 (barf)

I’ve heard production cuts are coming, so I may be inclined to buy a little more UNG soon. My warning below remains with USO. I will not be adding to this position. I will continue to hold USO, but I would not hold a 10% position in my 401k. I”m being a bit hypocritical by saying I’m willing to hold USO, yet I’m not really willing to hold a lot. Good thing this is a blog and not your go to source for trading advice eh! I will be waiting to make any moves. In not rush to lose more money. Good Luck

Oldinvestor

Fair Warning

US Oil fund ETF – USO is changing how they invest the funds of the ETF. I’m going out on a limb here and guessing that since UWT delisted, a lot of money may have jumped into USO. USO is marginable, so traders can buy 3x the amount, using their margin account causing 3x the gains/losses just like UWT. This amount of money in 1 ETF has come to $3.8 billion in funds invested in 1 contract of CLM20. USO is holding almost 150,000 CLM20 contracts, making it very persuasive to the contract price. At the same time if USO doesn’t manage the funds exceptionally well or one of the many events that are probably listed in the USO prospectus happen, USO could start receiving margin calls, causing them to dump contracts; in turn, causing the price to tank, causing more margin calls, causing the price to tank further. Sound familiar? XIV went from near $100 to $6 or something from one day to the next.

I’m not saying I know what I’m talking about, I’m just saying if you are trading USO like I am, be prepared for anything. Also, read the USO prospectus, don’t take my word for anything.

Just be fair warned that there are a list of events that can happen in any ETF, they are listed out, because the ETF creator is smart enough to know the scenarios that can cause total destruction of the ETF. These scenarios are listed in the prospectus to make you the trader aware so you cannot easily sue them when you claim they lost you a lot of money, when in fact they warned of such events in the prospectus.

Ok… I’ve said enough in my redneck lingo. I hope all this settles down soon and I can get back to normal, boring fundamentals again. If I’m completely wrong about what I’ve said above, please feel free to correct me in a kind manner.

I’ll be holding my 10% USO position, but it’s only 20 shares, keep that in mind if you are also trading USO. I can only lose roughly $100 at this point. Good luck

Oldinvestor

Morning Update – April 17, 2020

My current positions:

UNG – 36% of funds invested with an average of $13.28 – limit order to reduce to 31% at $13.28

USO – 10% of funds invested with an average of $4.64 – limit order to reduce to 5% at $4.64

I’m hearing a lot of shit talking going on in Twitter about people buying USO. These are people who’ve spent their lives trying to make a name in futures trading talking non-sense about people who’ve never spent a day in futures trading. They aren’t paying any attention to how ignorant they sound. There are a few intelligent comments by generally level headed individuals. These people might be slightly helpful to answer questions such as with trading futures. This is ngETF.com, I will continue to blog about ETFs.

It’s boring friday, production is still on it’s normal slow decline. There was what looked like a bump up in production, but right now it’s more about Canadian imports. Probably because the Northern US has been very cold and demand shot up, so Canadian imports were actually needed to keep up with regional demand. That will all change very soon and total US supply will decline again. There is a tweet that I don’t have access to right now, but I liked it this morning. I woman was mentioning all the reductions she knew about in the US with oil and total production. It is a good thread. I am suspecting the rise in Natgas pricing is due to a decline in production that I am unaware of thus far. I think enough time and gone by and the price has declined enough, there could be a surprise rise in Oil. I don’t know this for sure, and it’s a pure guess based on small declines in production I think are slowly ramping up into large declines in production. Before we know it the US oil market will be demanding more and production will be slow to increase again. This will be great for USO.

I will continue to hold 31% of UNG into next week unless the price reaches $14 today. I am very doubtful of this. Same with USO; even if 5% sells, I will be holding 5% into next week unless we see $5.5 to $6, and this is even less likely. Good Luck

Oldinvestor

Morning Update – April 16, 2020

Update: 3:13pm est. time: I will set a limit to reduce UNG back to 31% at my break-even price of $13.28. I will keep this order open tonight and tomorrow morning. I’m going ahead and adding to USO with 5% of funds at $4.25 My holding for USO is now 10%.

Natgas production numbers might be showing signs of a strong decline. Remember there is a lagging effect on the production side. I’ve two ways in which production can delay falling. The first would be in a normal market that we’ve had until the virus came into existence. The market is oversupplied, prices fall gradually as they did in 2019, and the market takes forever to compensate by reducing or to at least stop adding to production gains. The second is as I hear HFIR state it, the readings for production aren’t coming from the wellhead, they are from further down stream. So it may take days for production decreases due to wellhead reductions/shut-ins to make it to the data supplied by venders that deliver supply and demand data. Either way, we can anticipate this decline in production. Though we don’t know how much the decline will be, we can bet that it will eventually match demand. When I’m trading, my hope is that the market is overreacting to the current declines in demand, and it will correct in my favor when production declines come into play. This being said, I’ve been early on the jump almost every time I start buying.

Well my time has been up. I am getting too busy with work. I have been trying to get back to this one statement for about an hour now. I’m just going to post this

UNG – 36% of funds invested with an average of $13.28

USO – 5% of funds invested with an average of $5.03

If there is a drastic drop in either UNG or USO today I’ll add to my positions. NGM20 is at $1.72 and CLM20 is at $26.34. There is a lot of contango that could cause both UNG and USO a lot of problems. This and the extreme unknown about the market and the economy is reason to stay extra cautious. Good Luck

Oldinvestor

Side note:

“Maintaining social distancing of 6 feet when possible.” As long as “when possible” remains the approach to this problem, the problem will remain in tact, and quite healthy.