So weather shifted bearish again, and production is back online. I would believe that is pretty much it for the weekend. I did see a comment about LNG, but I have no idea the validity. It would backup my fear that the LNG market is flooded and there is no where to go with all that gas. It could just be there is a a temporary delay when offloading gas to China since they are not being very cooperative over this virus situation. I have not mentioned in a long while manged money positioning, which is still showing record short numbers. This has allowed me some comfort in my UNG holdings.
As for me, I’m going long; adding rather.
It appears as though support will become resistance. At least I see the potential. Natgas gapped below my support line, only leaving me to believe prices are going to enter a new range here.
I believe this may be a bit early, but I’m placing a limit to buy UGAZ with 4% right now at $40.85 I will plan to wait on adding to this. If the market decides to go higher, I hope to get above $44 to sell UGAZ
I’ll continue to hold UNG with 89% of my funds. I will soon have a page with my current holdings that can be viewed any time. Don’t get in a rush here. Good Luck
Weather forecasts are back to HDDs continually weakening yet the maps look like there should be more above normal HDDs moving across the US. My first thought is the market is going to test support today.
Pricing is between my support and resistance lines, slowly moving down. I’m obviously not interested in shorting here, but I’m going to take a small chance today if the price will drift a little lower. Fundamentals are not exactly supportive of the market going higher, but the lack of shorting power by managed money is not exactly supportive of going lower. Not to mention pricing, which is not supportive of production right now, and the list goes on.
I’m going to set a limit to buy 1 share of UGAZ at $46.75. 1 share for my $1000 account is just under 5% of funds. So, roughly speaking, I’m going to buy UGAZ at $46.75 with 5% of funds today if the price will reach my target. If this limit order gets filled, I will then place an order to sell UGAZ at $49.75, making $3 on the trade. I’ve had 3 chances in the last 5 trading sessions to make this trade, it would have added 1% to my account. this, to me, is worth the risk of investing 5% in UGAZ at $46.75.
I can place this limit order as a conditional order, to buy at $46.75 with the condition to sell at $49.75. This is nice, but I cannot place this order as a pre-market order. I’m ok with this. If the price falls pre-market, there is a good chance it may fall past my buying mark. The good part of this order, if it buys at $46.75 or lower, it will automatically place the sell order at $49.75. This trade reflects the need I feel to trade more noise in this range. A small amount of UGAZ can go a long way in either direction, thus my reason for only 5% for now.
I will still have my order in to buy UNG at $14.40 with 15% of funds and reduce 38% of my current UNG position at $15.85. Good Luck
This part should go fairly quick and I should not talk in circles this time. I’m going to refer back to the same timeline I’ve been using, Dec 21, 2017 to Jan 3, 2020. I want to cover every detail that I can. For one thing, I still don’t know myself how all this will unfold completely. I have theories in my head that need to be tested.
For this part I will layer into the position vs just taking on a full short position.
We know Dec 21 was a significant bottom for UGAZ because we can see on the chart. If I just started with the idea of shorting UGAZ on that day, in 2017, would I or should I have taken a max short position of 18% of my account value all at once? Fundamentals have the answer. I’d like to compare that moment, in 2017, to right now.
After a long run down , and the price is closer to a bottom than a top, should I short UGAZ with 18% of the funds in my account? The answer to this is going to be far different for everyone. I could max out at 18% and just chance it. I could go long with something else to protect it, which I’ll get to next. For now I want to stick with “Layering-in”. I want to compare a simple plan for layering into a position with the Short-and-Hold example.
As for my answer; I would not, in any way take on a UGAZ short right now with 18% of my funds without a spike in the price. Fundamentally, a small short here is worthy of attention, but not 18%. Not yet. On to the data.
In the chart below, I’m zooming in to the beginning of the range I’ve been discussing. Early on there is a substantial move upward in UGAZ. I want to use this to show how much difference layering into the position can make. So just off the top of my head I chose to plot these lines roughly every 10% move higher. I started Dec 21st with 2 shares, and added 2 shares with each close that was roughly 10% higher than the previous. There is a gap from $600/share to $700/share, so I added a couple of layers close together there.
I changed a few layers just to see how the chart would turn out, mostly sticking to the UGAZ layers above. I want to point out here the maximum Funds needed to cover the UGAZ short is around $10,000 less than originally. Also the pre-interest gain made on Jan 3, 2020 is $10786, with a maximum of 16 shares shorted. I only layered into the first move backward to show how much difference the results can be with a fairly small change in how UGAZ is shorted.
Above is a screenshot of the data sheet of my spreadsheet. You can make a copy or download the spreadsheet and manipulate the sheet if you like. The highlighted column is the “number of shares” you want to be holding at that time. You can increase or decrease (with a positive number, the sheet assumes this is a short position), the sheet will adjust the average of shares held with each increased short, and will hold onto any gain/loss when the position is reduced. I’m just getting warmed up with my analysis of this. Look forward to more in the following posts.
Now that I’ve said too much about the dangers of shorting UGAZ, let us move on to how I plan to protect my account. I talk in circles a lot, get over it; I’m thorough. There are two major dangers to protect against, getting a margin call (not having enough funds to hold on to a short position when it goes backward), and the broker taking the shares back because the owner of them must have them back to sell them. These dangers are equally damaging and can both leave you “holding the bag”…. Am I saying that right?
In this post I’m sharing the data for the example I’ve been working on; Holding short from Dec 21, 2017 to Jan 3, 2020. I’ll get to the Margin dangers in the next couple of posts. I swear I have an outline in my head, it just keeps changing.
Something I hadn’t noticed before, this example shows 371 days to go backward, then 371 days to make a profit. As a summary, you needed roughly $53,000 to hold on to a short worth $9944. That is a position worth 18-19% of max pain. After 371 days of survival, the trade goes on to make roughly 86%, or very roughly 13-14% gain on the account after incurring (assumed) interest charges to short for that long a period.
The focus here is: By never exceeding more than 18% of my original account balance on a short position, I could have survived this trade.
First step, plot the UGAZ short. With Tradingview I can load the UGAZ daily chart and export what I have on the screen to a CSV file. I have daily OHLC all ready for me to manipulate and build the first Chart. Yippie.
I found the time to get the first chart generated. And here it is.
The image may be difficult to see. Good thing I am sharing the document itself for you to look at the chart and the data yourself. I have shared it here, at google sheets. It will open in a new window and you don’t need a google account to view the document. It is a downloadable Excel file if you want to make a copy and change it up any way you like.
So there you have it. Starting on Dec 21, 2017, immediately heading into a loss, recovery, near catastrophic loss, and finally the road to success. I will continue to use this example from Dec 21, 2017 to Jan 3, 2020 for the next few examples. This example is the best of historical moves to test protecting my account. I will eventually test other moments in UGAZ history. I hope to get the next section posted tomorrow. It should be fairly simple; I plan to manipulate some of the data for this chart to show how easy it can be for me to improve risk management and maintain or even improve profits at the same time. Till next time