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I started buying some relatively cheap NGH C3 options.
Winter is far away, and temperatures in December / January / February are unknown today. But there were many years when NGH moved above 3.0 some time in winter.
In case NG price moves further down even lower strike prices might become interesting.
I intend to sell half of the options with a profit of 100 % to have a free trade for the remaining options.
I've just seen it this morning and was thinking about selling the spread on a technical basis only. I couldn't figure out the fundamental reasons why this has risen so much recently - maybe the bearish CL fundamentals (eg. Russia removing an export duty on crude etc etc) apply more to the Z contract than the earlier ones??
I will do it on a small allocation.
(A year ago, I did a similar technical trade, and that worked out pretty well.
I've just noticed that the backwardation in CL has created a large divergence between CLU18 and CLZ18, currently almost 4. (In fact, other spreads eg CLU18-CLU19 etc etc show a similarly unusually large divergence.)
This spread has been between 0.5 …
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,386
Thanks Received: 10,206
I don't have an opinion on the subject (V-Z) but as I showed in this chart last week, CL definitely seems to be pricing in a multi year supply-demand change which I would suggest is driven by the macro opinion of a global slowdown. I say this as things like the Eurodollar curve have a same shape. So maybe the V-Z increase is more a function of Z coming under more pressure from the curve shape change, rather than a strong fundamental reason?
I closed this today at 0.46 (opened on 16-Aug for 0.75) for a profit of 0.29.
The spread may well fall further, but I have some other CL trades on at this time, so just wanted to take the profit on this one and run.
So... the Saudi oil production has been disrupted with drone strikes. CL has risen around 8-10% this morning.
To avoid panic, Trump says there's plenty of oil.
As traders, what do we do?
- wait for the situation to clarify itself further, before taking action?
- go short and take advantage of the high volatilty and sell calls or call-spreads?
- go long and ride the uncertainty?
- find a calendar spread trade which takes advantage of the near month rising more than the back ones (eg CLZ-CLG)?
(These tend to be low margin, so give a good ROI, if successful.)
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,386
Thanks Received: 10,206
It's just a massive bet on how much damaged was done. It seems apparent that shutting down the entire complex (~6M bbl/day) was precautionary. So the question is how quickly does this come back. If they bring 90% of it back online by the end of the week, then the effect on world supply is minimal. In on the other hand they only bring 50% back and it takes months or even years to get the other 50% back the effect on world supply is significant.
Last night it was chaos, and there were some crazy price moves in individual spreads. As a heavy Butterfly trader some interesting anomalies were
FGH20 butterfly settled 0c, traded as high as 150c, now trading 2c - I didn't see this happen so no idea whether it was just one lot
HJK20 butterfly settled 3c, traded as high as 15c, now trading 6c - This was not 1 lot. You could easily sell HJK in mid teens.
UVX20 butterfly settled 4c, traded as high as 15c, now trading 5c - This was not 1 lot. You could easily sell UVX in mid teens.
Interestingly other butterflys like GHJ20, MNQ20, NQU20, QUV20 barely moved.
Right now (CLV 6043) they seem to be coming after Z/J the most (271c, +141c which is +35 per spread) versus V-Z (73c +47c just 23.5c/spread) and say J/M (110c, +43c just 21.5c/spread). So in Condor speak the V-Z-J-M condor is -51c on the day!
One thing that has now changed, is that since this happened once, it could happen again. As such I think there will be a new fear premium built into pricing. Question is, how much?
According to Jim Cramer (it was my lunchtime and I was casually watching CNBC ok) the damage was to a part of the refinery that is responsible for a complex gas extraction process. So not a quick or easy fix.
