Morning Thoughts – holding

My positions as of pre-market 1/7/21

I’m up to my eyeballs in ignorance at work. It’s about to swallow me up.

Tip for life: There’s human speed, and there’s the speed some humans want everything around them to move at. On a general basis, that seconds speed is always 11, it al ways has been and always will be. Greed is a confusing, hard to control emotion for most people. It consumes their behavior to the point at which they cannot set it aside in order to listen to reason. For example you tell a person that Equipment B will only run at say 500 pieces a minute and they see it run at 580 for 30 seconds, they latch onto this idea that Equipment B will do 580 or why not 600 all day. Greedy does bring about certain changes that can be a good thing, just don’t be blinded by greed.

Anyway, I’m holding where I am. I’m lightly bullish still. I’m hoping to gain a little with UNG suffering vs UNL staying afloat. With such a small position, this should be good to watch with minimal damage to my account if it doesn’t work out the way I’d like. I do know this; this trade would have been perfect in October to now. Contango is not so strong now, so I may not get much from the idea of long UNL/short UNG. And it is possible, in an under-supplied market, that this trade could go completely against me. However; I’m still heavy enough on UNL that I would make money. It will be a learning experience in any case.

Today is EIA report, normal time (10:30am eastern). Good Luck

Oldinvestor

Morning Thoughts – Down to very little long

My position as of pre-market 1/6/21

I’m going to stay long biased on this market, but of course I don’t always want to carry a heavy long position. Starting out this morning, I’m down to 50 shares of UNL. I’m considering a small short UNG position to offset a little more. Why not simply sell down more UNL?

Natural gas Term Structure 1/5/2021 vs 12/5/2020

UNL, being invested across many contracts, you can see how it might do better, as these contracts are higher from a month ago. Yet, at the same time, UNG should be lower, as prompt pricing is lower than 1 month ago. The difference may not seem like enough to play the spread (long UNL/Short UNG), but over time, this can be the result.

UNG vs UNL June 2020 – 1/6/21 premarket

So with storage to a surplus, as prompt pricing reaches expiration of that contract, the price may fall because there is more than enough gas with no threat to storage. This happens enough over time, it has a tremendous negative impact on UNG, and less of a negative impact on UNL.

When UNG rolls to the next contract, it is 100% of the holding, and if the next contract is priced higher, even by a few cents, UNG rolls out to a higher price. You have to study the timing to see it, but the impact on UNG is negative more often that positive. This also give short biased natgas ETFs, such as KOLD, a boost.

UNL is always holding 12 contiguous contracts, so it only rolls about 8% from prompt to 12 months later. This could also have a negative impact on UNL, such as rolling out of NGH21 at $2.673, and rolling into NGH22 at $2.892. But UNL, more often, sees a positive impact, such as rolling out of NGJ21 at $2.688 to NGJ22 at $2.501. It’s all in the timing of the roll. If you don’t understand me, please don’t think that UNL is going to roll H contract and J contract this week; nor will they roll at the same time. You have a lot to study if you get that impression.

My point is, UNG is impacted negatively on a regular basis, where as UNL is more consistent with the long term market.

I’m out of time. I’ll plan to hold this new positioning for the rest of this week and maybe longer. Oh, and I could have just reduced UNL some instead of shorting UNG. I am going to pay 2.3% of my UNG short position in interest, so I have to at least beat that. Good Luck

Oldinvestor

Morning Thoughts – time to reduce

My positions pre-market 1/5/2021

I will be reducing, but not until the market opens. My account is showing a larger UNG profit than it should; my short call will offset some of this at market open. UNL will also gap higher at market open, so my balance may remain about where it is now. This being the case. I plan to roll my UNG call forward today and reduce UNL to 50 shares at market open.

This move is a not surprising, but is nice to wake up to. Other than a trend and the price considered to have gone too low in the first place, I’m not certain what would be pushing prices higher at this point. I’m content with my position and my little profits, Part of me is just ready to be out for a bit. I could just dump my UNG position, as it is very near max gain…. I will elaborate on that in a moment

EIA Storage Surplus vs Prompt Pricing

First. Keep in mind the pricing chart above. Prompt pricing is still well under the $3 bar, and this is what I would consider the ceiling for now. Technically UNG/UNL has a little more room to move higher still. Storage is still at a surplus to the 5 year average, so I don’t feel pricing will rush to move above $3.

So I’m reducing UNL to 50 shares at market open, and rolling my UNG call out by 1 week to 1/15/21. I should still add 10 cents in premium potential to the trade and I can still make max as long as UNG stays above $9 by 1/15/21. If UNG starts trending down, I’ll cover the trade. I think it’s safe to go ahead and roll out another week at this time. I’ll take it one day at a time beyond that. Good Luck

Oldinvestor

UPdate:

I dumped all my UNG because the options premium started getting away from 10cents to roll forward to 1/15/21 expiration.

updated positioning 1/5/21

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

Oldinvestor