Morning Thoughts – Shorting LABU vs Long LABD

So Natgas is the same story, different day.  Supply is not reducing enough, LNG is on the fence still and India and China are shutting in again due to a confirmed second wave of the Wuflu that is here to stay.  The market’s only hope is that power burn will give some relief and maintain storage.  All the while producers are going to be dropping like flies, and for us traders, it’s all taking/going to take so much longer than we can sustain for negative roll yield in ETFs.  Oh, and it’s boring Friday, don’t expect much.  Maybe next week will throw me a bone to reduce.  As for today, I’m not planning on making any moves.  I can’t imagine there is going to be a move higher or lower enough to excite me to make such a move.

How about something a little different today?

Keep in mind I am still an amateur trader and am not giving advice here.  I’m going to share some trades I’ve made and ideas I’ve had.  I’m not recommending these trades and certainly can’t provide confidence these trades will lead to a successful life of wealth. 

Also keep in mind I’m going to work on this post throughout the day since it might be rather large and I haven’t even thought of how to present it.  I’m also home taking care of my wife (she is ill with Epstein Barr), and hanging out with my 6 year old son.  I hope to finish this post by this evening.  Check back for updates.  

This is quite simple. Decay in some leveraged ETFs is stronger than others. LABU and LABD seem a set of of ETFs where decay is more amplified. I can’t say why these decay more than say SPXL/SPXS. I know that UGAZ is the king of decay due to negative roll yield, thanks to constant contango. I don’t really need to know why LABU/LABD decay so bad, I just accept it and plan for it to continue.

I guess first I will walk through some covered put trades I made

NOTE:  I found how to make this image clickable and it will open the full size image to be viewed!

I’m testing this image here, It is a series of covered calls on LABD.  With the right amount of time given, I can organize these trades to be read more clearly.  I don’t generally share the actual trades except for my UNG trades in my example account, today I’m making an exception.  I really made these trades and I really lost money.  I exited the entire trade, it wasn’t worth rolling and 3xETFs make me more nervous than they used to.  And I would be down much further today had I not exited when I did.  

So with that in mind, let me see if I can go organize these to be a little more presentable.

I think I’m just setting myself up for failure with some posts.  I just don’t have time to dedicate to this with everything else.

One of my key thoughts is to make longer term trades, by shorting LABU and selling Like November expo puts vs selling weekly puts and adjusting the strike price as LABU moves around.  The I simply wanted to compare an example of what Theta might look like comparing weekly vs 3 months out. 

Selling a 60-90 day put, I wouldn’t collect as much premium per week vs selling a good weekly put.  Weeklies though may not always be that easy to land on the right trade so some weeks may collect a good amount of premium and some weeks may not.  I’ll get to this eventually. 

Morning Thoughts – Oldinvestor

Something that stands out, but is small would be Canadian imports. Canadian imports were relied upon once upon a time. And they may still be regionally in the US during winter months. Anyway, Canadian imports have been 1Bcf/d lower y-o-y. Imports have been on the decline every year, but it is worth mentioning.

Back to LNG gloom, looks like nothing is stopping Qatar: Qatar’s LNG expansion projects will not be affected by current volatility This article speaks of some near term topics such as delays and the Wuflu, but mostly it is about Qatar expanding by 2025 and 2027. This is not so much a concern for now.

On a good note for once. Here is an article I happen to see yesterday after I posted: As Chinese LNG Imports Increase, U.S. Gains Market Share. China wasn’t on my radar, the US hadn’t exported but something like 7Bcf to China in all of 2019. So far this year, the US has sent 38.6 Bcf over 11 cargoes.

LNG cargoes to China YTD on RonHenergy.com

Though it may still be a struggle to find a home for all that LNG, it is good to know China is still an option.

Since it is Thursday and I’m already at RonH Energy, I’ll point out storage.

Year over Year NG inventories at RonHenergy.com

So gas storage is something like 800Bcf higher than last year and 400 something Bcf higher than the 5 year average to this point in the year. What has prices so low, is the angle of that white line. All roads lead to storage. Though US inventories are lower than they were at this time in 2016, prices are staying down because of the threat of setting a new record high in storage by EOS (End Of (build) Season). It seems pretty clear on the above chart the current trend is much more steep of an incline than in 2016/17.

Luckily lower prices have done their job in causing producers to cut spending on wells that are drilled now. The hope for me, these cuts in drilling now will show stronger signs of an impact on production by winter. The impact doesn’t need to be great in and of itself, but there needs to be a seed planted on the thought that there will be a lack of production and strength in demand to spur pricing.

My position

UNG – 80% in with an average of $11.22

I’m back in waiting mode. UNG has made its way above where I bought my last layer (barely). I’ve considered placing a stop on this last layer, but it’s really more about the negative roll right now than an actual move lower in NG prices. The contango and negative rolls will impact UNG more than falling prices. Falling prices will recover, but negative roll yield is forever… I’m going to do my best to wait out today. HFI is projecting a build of 80 for today’s report. I’ve not checked to see what everyone else has, it will be all over twitter. @TradersCom usually has a list. There are some very sharp people who guess the build and are generally very close. I think anything stronger than the 5 year average will be taken as bullish. I’ll be waiting for sub $9 or $11.22 on UNG. Good Luck

Oldinvestor

Another article I just saw the headline to but haven’t been able to read yet:
U.S. Is The Surprising Winner In China’s LNG Market

Morning Thoughts – Oldinvestor

I feel like crap. I sold too many covered calls against BOIL, it’s getting painful right now. Covered calls are just like anything else, they work until they don’t. They have helped with my layering method, but I didn’t regulate my trades quite enough. Had I stuck with covered calls against UNG, I might feel considerably better about this week. I’ll survive and dig my way out as usual.

The frustration causes me to second guess myself in adding to UNG yesterday. I’ve added 20% more funds to my UNG trade, bringing it to 80% of my funds dedicated to UNG. LNG nonsense still has me on edge. If you haven’t read any other articles I’ve posted, here’s another on Australia: Global gas market ‘extraordinarily oversupplied’ and now hitting Australian exports

The article mentions the 41 cargoes of Australian sourced LNG still seeking a destination. Australia exported 101 cargoes in April and only 93 in May, but this is only an 8% drop. US exports have dropped nearly 15% from April to May. June will be far worse, and July is already shaping up to be equally as bad. This idea that Australia having 41 cargoes at sea is recent, but this fall in exports will worsen. The only good take away from this news is that it is old news. We don’t care so much about what happened in April/May; we want to know what is going to happen in July/August.

Here in the US apparently Cash pricing dropped as low as $1.38, a 21 year low as reported by Platts: Cash Henry Hub gas drops to 21-year low on weak LNG dynamics. Imagine that, based on LNG weakness.

Cash Henry Hub settled at $1.38/MMBtu on June 16, which is location’s lowest settlement price since it fell to $1.01/MMBtu on December 3, 1998. For context, the December 3, 1998, settlement is cash Henry Hub’s all-time lowest recorded settlement price.

S&P Global Platts

This storm is finally really beginning. Banks have finally had enough, prices are unbearable, and producers have already been suffering for years up to this point. I look to see more declines in production, at least I would imagine there will be some choppiness in production if cash prices are dumping like this. We shall see

My position

UNG – 80% in with an average of $11.23

I am back to waiting for what I would think the last major leg lower or a bounce here. Any kind of a bounce and I’ll be reducing. As usual, I will target my break even price of $11.22, but will take any bounce I can get right now. For example, if UNG bounces to $10.7 and I feel like it’s not going to make it to $11.22, I’ll reduce back to 60% there. We’ll see when the time comes. If prices just start falling again, I’ll wait for another 3% lower before adding my last 20%. I hope it doesn’t come to that, we’ll see. Good Luck

Oldinvestor

Morning Thoughts – Oldinvestor

Go check out this video https://www.youtube.com/watch?v=yEMeOr7_KOA

I I barely follow this to its full capacity. We all need to learn every more about options, especially futures options if we continue to trade NG. I was able to skim the video. I see a new trade for myself called a Jade Lizard? selling a call vertical in combination with selling 1 put. looked like the call spread was OTM for Dec contract at the time of the trade and the put was $2.5, that may have been ATM at that time. This looks to me like a more calm trade. I need time to look at it further. This reminds me of what I should have done when I sold TVIX back in March? I should have bought OTM calls that were super super cheap at that time. It would have protected my short big time. Of course I would have had to to do this in UVXY instead because TVIX doesn’t have options, but I could sold TVIX and bought UVXY options.

Thoughts on gas. The shit is really hitting the fan this week. It may not be long now until well see a dump and jump. Like maybe a hefty gap down in UNG followed closely by a reversal trend in the market. I can’t say prices will do this soon ( as I would like to see happen)… Something I learned from a George Kleinman book I read, of course you’re supposed to wait for it to happen, then get in. The market will gap near the bottom of a trend and this gap can commonly precede a reversal in the market. Like a last ditch, going out of business sale, that shifts to que buyers, just in time when fundamentals are finally ready to be in favor of bulls. The reason to wait for the gap and even the reversal, because we don’t know how much more downward pressure there is left in this market. Especially for those in ETFs. I’m glad I chose to not go near UGAZ.

My UNG position has my account balance down like 2% to 3% overall from inception of the example account. I’m a little upset I’ve wiped out a nice gain I had, but life could be far worse, and I’m surviving one of these worst downturns in Natgas history, in an ETF of all things. I’m gonna hang on a little longer before I get interested in buying any more.

As for shit hitting the fan, I’ve heard a little about demand recovering, but a lot about LNG still in the hole due to massive amount still on the water (in a boat). LNG feed gas has just posted a new low. Lots of chatter how production probably isn’t going to decline much further. Banks are just now making the decision to cut off bad debt.

This is probably the best news. In 2015ish, banks kept supporting E&Ps, because it was a true V shaped recovery for oil and for gas. Instead of letting producers fail and cutting them off, the banks propped them up for maybe a year in hopes of getting loans paid back on a delayed schedule. This seemed to have worked for the most part. I can’t say my next statement is responsible for the entire situation in natgas; by propping up natgas producers, they supported the glut in supply. Producers suffered just enough to slow natgas production just enough for demand to barely catch up and help prices recover to a profitable range.

LNG saved all their asses for like a minute… Again, since producers didn’t go down the tubes, causing major cuts in exploration and drilling, the market stayed well supplied enough for LNG export prices from the US very desirable for both buyers and exporters.

Up to winter of 2019. The order may not be exact, but banks prop up producers; producers survive well enough to start paying back banks and go back to old habits of growing fast (based on how much credit they can get from the banks). Prices never get too far above $3, with the short term exception of winter 2018/19. LNG exporters are excited since prices in US is staying low, making life very easy for them to sell LNG to Asia and Europe and making expansion look desirable to investors. Producers are soo good at getting back to work, they over supply the market again, and finally the LNG market starts signalling it is to capacity. US natgas pricing had already been falling in 2019, reminding producers they have overshot. Producers begin to feel the pain a bit and start dialing back on new exploration. They’ve all gotten so good at producing these horizontal wells and have been over expanded due to massive amounts of money poured into it all from banks/investors, here we sit. An oversupplied market with our fingers crossed that LNG will continue to expand that last little bit to finish out 2020, and production is softening a little bit. Then 2020 begins and the pandemic hits….

Had these banks not practiced the idea of extending loans back in 2015, many more shale producers would have failed, delaying more drilling and completions activities, causing prices to spur more, maybe keeping LNG exports from growing so fast and not over supplying the world with natgas… That’s a long run-on sentence, and quite the theory, I know. But it’s got to be at least 10% true.

Anyway, so to hear a statement like : Banks Cut Shale Drillers’ Lifelines as Losses Mount This is music to my ears.

Morning Thoughts – Oldinvestor

Well it appears US production increased a hair and Canadian imports decreased by the same or more. Overall supply is still holding in general. Demand took a large hit over the weekend due to cooling across the US. Power burn dropped by 10 Bcf/d. So weather becomes a bit of a factor now, but nothing worth getting excited over. LNG is resting still around 3.8Bcf/d and (pipeline) exports to Mexico reached a new high in the last few days. None of this is enough to overthrow LNG as the ever driving factor for current low prices.

Looks like Australia is (finally?) getting back up on their LNG exports : Australia’s LNG tankers sitting idle as global supply glut, COVID start to bite. 41 cargoes are upon ships, waiting for a destination. “Chevron’s LNG operation off the Western Australian coast which was initially destined for Asia was instead sent to Mexico after sitting idle for more than three weeks.”

I have a call, and an intern to babysit. I must go

My position

UNG – 60% in with an average of $11.73 – awaiting the end of NG as we know it.

I know this all sounds like the same info I posted last week, but still in the same (LNG) boat. No plans yet to add or take away from my position. Patience, and Good Luck

Oldinvestor

Morning Thoughts – Oldinvestor

This one stuck out. More LNG nonsense… Ok, so I pasted the link, but it’s super long, let’s try this…

S&P Platts article: US-China tensions cast shadow over bilateral LNG trade

So this is about Chinese being in the rest of the boat as everyone else in the world right now. Demand is soft; demand growth is still backward, and natgas storage is at/near record highs. So the Chinese are going to use this as leverage over the “Trade agreements”. The question is, how much do they like buying gas from Russia? We know that Qatar and Australia did not reduce export capacity by nearly as much as US and when demand recovers everywhere, these two countries will reach their current export limitations again. It may be 2022 before this happens, and Qatar claims they are planning to expand exports further, but so is the US private sector. Here’s a secret about news articles, they have to make it sound interesting, it sells better. Hell, I’d sell better if I would write more interestingtingtingly.

If US private sector planned to build 15Bcf/d equivalency worth of LNG exports by 2021ish, to the tune of $10billion? $20billion? or more in cost of construction, then… these private US companies are going to do their damnedest to make sure, even with Qatar and Australia and Russia involved, that there will be enough global demand for them all to have a place to go with the gas. There is going to be competition, but no one wants to compete for $2/MMbtu. So, we’ve hit this bump in the road. The US hasn’t been sending gas to China lately, so there is really little to no threat as far a trade agreements. As far as my statement about Russia. If Asian and European demand get back to normal and some growth begins again, Qatar and Australia will not be able to supply China and everyone else with Natgas. Therefore China will have to play nice with the US or fill their natgas void with Russian gas. I don’t keep track of these international relationships, but right now it doesn’t even matter.

As for right now? Gas is boring… On top of that, it’s boring Friday and I’m home today since I worked Sunday. I have a lot to get done.

My position

UNG – 60% in with an average of $11.73

I still have zero confidence I will see $11.73 yet, so I have zero orders in to buy or sell UNG.

I want to share some other positions I have confidence in.

In my 401k: I plan to hold these for a while

  • SLB got in around $16 with 10% of funds – I reduced 30% of that position above $21, and added it back yesterday at $19 to be 10% in again
  • EOG – Same as SLB – about 10% funds – reduced and back to about 10% in this morning at $53
  • AR (Antero Resources) – 2% invested with an average of $3.17 – I would like to just hang on to this until I see what happens. I would stop out at $2, but not sure how long I plan to hold this.

Side note about my 401k account, I was holding SPG and SRC, 6% dedicated to each of these, I saw they were rising very fast and excited a few days ago. I am not sure about re-entry yet. Today looks good, but I want to see how stock markets react over the weekend.

In Cash:

  • BOIL – I’ve got maybe 50% of funds dedicated to covered calls at various levels – trading similarly to UNG, but with calls helping to protect my account balance, I would say it is fair but not good enough.
  • KOLD – I shorted and sold a single 7/17/20 put 60 strike. I’m liking this more than buying BOIL, interest is high, but so is decay. I also have to be much more careful about margin requirements. interest rate near 6% to short with Schwab.
  • LABU – Short 1 covered put here as well from 47P for 6/19/20 expiration. going exceptionally well, I am hoping LABU doesn’t drop like a rock, but slowly decays so I can slowly roll this put lower as time progresses. If it gets too far ahead of me, I might abandon selling puts and just let the decay take the shares lower – interest is 1.5% right now to short LABU with Schwab.

I hope this is helpful. I do eventually plan to start talking at least about my KOLD covered puts, because I believe in them and I think some readers want to hear more about that trade. Liquidity for KOLD is fairly low, and like DGAZ right now, it is hard to get shares to short (as in none available this morning). I might be able to call the trading desk and ask them to go out and get me some shares to short.

As for UNG, just hang in there. Slow can be good, no rush to try and manage things, wait for demand to recover I say. Good Luck and hope your weekend is safe and enjoyable

Oldinvestor

The Heller Angle – June 11th, 2020

Fundamentally I continue to be bullish in all time frames, although most cautious in the short term (1-6 months). I think the market has already priced in weak demand and producers are shutting in production or deferring as much as they can into higher priced months in the fall. I am most concerned with short term demand as many places in the US are seeing a rise in Covid-19 cases again. There are a lot of unknowns and how people react. How much of the population self quarantines? Do businesses get shutdown temporarily if there is a known case in their building, plant etc to slow the spread? Or (less likely in my opinion) are new lock down orders put into place in hot spot areas? I really do not know what is going to happen in a potential second wave of infections. This is why I advocate to stay conservative in my trading positions in the short term.

When my fundamental view aligns with a MACD cross over, I would normally get more bullish by writing put spreads closer to the market. I would also look for opportunities to buy call spreads if I could get the risk/reward right in my mind. I might also go out past 60 days.

Today the MACD crossed over for the first time since early May. While no indicator has a perfect batting average, MACD signal has worked for me when pairing with my fundamental view.

The 1.90 straddle in NGQ20 is trading for just under 0.31 as I write. I want to be at least 1.5x or approximately 0.45 away so I am looking at credit spreads at 1.45 or below. Here is my trade. Sell the August NGQ20 1.45 x 1.30 put spread for 0.010 (filled). I also put in an order at 0.011 to see if I can get hit overnight with any drop. Otherwise, I will probably move this to 0.010 tomorrow.

Even though I am not putting on an aggressive bullish trade, let’s look at a long call spread setup to monitor and learn from. Looking at the chart again, I see potential resistance at the 50 day SMA or 2.073 as well as stronger resistance at the 200 day SMA at 2.215. Another thing I look at is the at the money call which is approx 0.15 (or 0.5x straddle as the other way to look at it) so that I don’t pay too much premium. If I am buying premium, I also want to receive a minimum of 3x max profit as some trades simply will not work. With a 1.90 call at approx 0.15, I am looking at the 2.05 call for 0.094 while selling the 2.20 call for 0.050 for a net premium of 0.044. I really like this trade setup as I like buying the call below where I think some resistance could be while also selling a second call to offset some of the premium at a second resistance area. I am using bid / ask middle but I might need to pay 0.045 or 0.046 to get this off in real life.

Click here to view all of ‘The Heller Angle’ posts

Morning Thoughts – Oldinvestor

My mind is overrun by this protesting stuff and how politically driven it feels. I think the majority of individuals feel they are not politically driven, they just want everyone to feel safe around police enforcement. I think the media so much more politically driven than they will admit, it sticks out like a muffin top in skinny pants. I try to find new ways to search for news. There are a lot more articles being written about things we don’t get to see unless we search it out specifically.

Let’s switch to natgas. If I go to Google News and search “LNG Qatar”… I have a call now. I should return… This is interesting, I see two headlines “Qatar will not cut LNG output(production)”. One article posted on May 22, one yesterday, two different sources. “Qatar Says Big Natural Gas Expansion Plans Remain Despite Global Glut” on May 21. Looks like there are also a number of articles discussing LNG tankers as well. Qatar is really sticking their neck out here. I’m certain Qatar expenses are lower than the US to produce natgas and get it delivered to near by countries. Qatar may also be willing to accept a far less profit margin than private US companies to take on such a large investment as LNG exports. Either way, Qatar certainly has the stance they want took as much market share as possible right now.

Anyway, so some of my hot topics to search would be:

  • LNG Qatar
  • LNG Australia
  • LNG demand
  • LNG pricing
  • global natural gas storage
  • global natural gas demand.

I know IEA (not the EIA) will have some data on global natgas. Of course the EIA may also have global natgas info, but it may not be as detailed or up to date? I’m not sure. I liked gas better when it wasn’t global. I did see on twitter something about Vietnam maybe starting up their first LNG facility, I would imagine that meant imports. I’ve gotta stop before I get more scatter brained.

My position

UNG – 60% in with an average of $11.73 – still waiting for something to happen.

I’ve got another call. The plan today is to wait. I know that sounds repetitive, but the market is in this mode right now. Good luck

Oldinvestor

I should leave you with this article. https://oilprice.com/Latest-Energy-News/World-News/The-Worlds-Top-LNG-Trader-Is-Predicting-A-Natural-Gas-Comeback.html

Morning Thoughts – Oldinvestor

There are a couple of articles here that I’ve come across putting emphasis on LNG weakness.

https://www.naturalgasintel.com/articles/122250-natural-gas-futures-fall-on-mixed-weather-continued-weak-lng-outlook

This article makes mention of both Trinidad and Nigeria in positions to be exporting gas to US export facilities; I’m sure at a loss. If you’re a small country that has very limited access to well services to bring a well online after you shut it in; it may be more advantageous to keep the well flowing and sell the gas for next to nothing than to shut the well in. Especially if these wells are offshore.

https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/060920-global-lng-market-to-decelerate-sharply-in-2020-amid-supply-and-demand-cuts?utm_source=social&utm_campaign=topstories&utm_medium=organic_twitter&utm_content=plattsweb

This article is from Platts, more gloom and doom for LNG

Platts Analytics said in its monthly report for May published on June 8 that liquefaction utilization in the US is expected to fall below the 50% mark in the months ahead, while utilization out of Australia and Qatar will remain above the 80% mark.

Yesterday I was not so sure about current export capacity and the near term expectations of exports for Qatar. Now I’m closer, if Australia and Qatar are both flowing at high rates still while the US is struggling. This gives me a bit of hope if Global demand will pick back up. US companies know they can’t compete with the likes of Qatar on LNG in this price range, so they make deals with countries to pay them if they don’t take our gas. Not a fortune, and not on 100% of the LNG that is sent to those countries. Basically it’s enough that the companies here will survive in this scenario. So companies like Cheniere Energy have to freedom to still operate without the threat of financial trouble because of low exports. So while Cheniere is probably not going to post stellar earnings, they will be around a while to keep the lights on and get back to exporting as soon as prices merit such an idea. Also they can take in LNG from countries who are giving it away and be even more prepared for the future.

All this is still terrible news for me, being long on NG, since demand is circling the drain. Eventually CHK will officially file for bankruptcy and we’ll get that ball rolling with other producers who finally cave, drilling is already doomed. One might argue that right now I should just stay out vs staying long. I would agree with this argument, but what fun is that? Sitting on the sidelines, psshhhhh.

As for me, still waiting.

My position

UNG – 60% in with an average of $11.73 – waiting….

Natgas is really struggling with the future of LNG exports. LNG grew to something of importance, only to bite the entire industry in the ass. Major adjustments will be made within the industry as a whole to solve the current problems. It will take forever, and some adjustments will even swing the market to under supplied for a while. Being on the long side, I will wait for this to happen. Good luck

Oldinvestor

Morning Thoughts – Oldinvestor

LNG supply and demand forecast into 2035 by McKinsey

It’s amazing what you can google and find in 5 minutes. It’s also amazing how long it took me to consider searching for some info on LNG Growth figures. This image look fairly accurate, though the article is a bit older. The link under the image above will take you to the article; on page 17 starts a 5 year projection. The above image (page 26) sums it up for me. This image shows the oversupply in the current market, and “The LNG market re-balancing is expected to take place around 2022.” These expectations do not take into account the recent changes with the wuflu. We know that export projects that have not entered beginning stages of construction have an uphill battle to get started now and retain funding. However, this has not bearing on the current state of US LNG exports.

This is a bit of a surprise; apparently Australian LNG exports are doing as well as ever. This is a very short, easy read.

Australian LNG exports are holding at near-record levels, despite the global surplus of LNG and the contraction of economic activity due to COVID-19.

Eliza Booth with EnergyMagazine.com

I’m not able to find recent LNG export data for Qatar. I bet that Samir Madani fellow has the answer by boat.

I did discover an LNG export facility that is under construction in Texas; Golden Pass is 30% owned by Exxon, and 70% owned by Qatar Petroleum.

https://www.reuters.com/article/us-exxon-lng-golden-pass/golden-pass-seeks-to-boost-capacity-at-lng-export-plant-in-texas-idUSKBN2383K2

My time here is up

My position

UNG – 60% in still from $11.73 – waiting still

It would seem I’ll be waiting until November to sell UNG. Where is that cross-eyed emoji, you know the one with his tongue hanging out? Anyway. I don’t have any orders in right now. Still waiting to see if anything will spur NG or cause it to dump further. Patience, once again. Good Luck

Oldinvestor