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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,792 / 5,734
Last Reply:23 Hours Ago (01:01 AM) Attachments:642

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Selling Options on Futures?

Old December 11th, 2013, 06:09 PM   #2531 (permalink)
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SMCJB View Post
All of these prices were set this morning before prices rallied. Futures prices are in line with Gulf Coast supply area spot physical gas prices. Spot physical prices at market areas are considerably higher than supply areas/futures prices.


ron99 View Post
Futures prices are 7 to 11 cents higher than GC prices.

I believe that 7 to 11 cents in nothing more than a timing descrepancy. Physical Gas trades early in the morning as it has to be schedule for the next day. Jan prices rallied late morning/afternoon after physical prrces were already set. Early morning tomorrow I suspect they will be in line again, but I could be wrong.

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Old December 11th, 2013, 06:10 PM   #2532 (permalink)
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SMCJB View Post
Tomorrow we expect the EIA to announce stocks dropped 90 BCF in the last week to 3524 BCF which would be 282 BCF below last year and 145 BCF below the five year average.

3524 is only 118 below the 5 year average of 3642 not 145.

http://ir.eia.gov/ngs/ngsstats.xls

But that 3642 includes last year's abnormally high number. If you compare 3524 to the 5 yr ave before last year (3523) it is +1.

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Old December 11th, 2013, 06:12 PM   #2533 (permalink)
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SMCJB View Post
I believe that 7 to 11 cents in nothing more than a timing descrepancy. Physical Gas trades early in the morning as it has to be schedule for the next day. Jan prices rallied late morning/afternoon after physical prrces were already set. Early morning tomorrow I suspect they will be in line again, but I could be wrong.

So which leads which? Do physical prices lead futures or the other way around?

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Old December 11th, 2013, 06:25 PM   #2534 (permalink)
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ron99 View Post
Here is the NWS 8-14 day forecast from yesterday
https://futures.io/attachment.php?attachmentid=130966

Here is today's 8-14 just released.
https://futures.io/attachments/130965

I would call that a warmer forecast.

I think your comparing the wrong forecasts.
You compared Tuesdays 6-10 day vs Wednesday 8-14.

Tuesday 8-14
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And Wednesday 8-14
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It's not that significant, and not colder everywhere, in fact it's definitely warmer in the AC & SE, but I do believe this is what the market reacted to.
Just an opinion, and I of course could be wrong.

I'm not trying to get in an argument about this. Since everybody here seems to be short NG, I was just trying to highlight potential fundamental reasons that could support these NG prices.

For what its worth I currently have no outright NG positon, but am short some front to backs further down the curve - which have caused a little pain. :-(

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Old December 11th, 2013, 06:44 PM   #2535 (permalink)
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ron99 View Post
3524 is only 118 below the 5 year average of 3642 not 145.

http://ir.eia.gov/ngs/ngsstats.xls

But that 3642 includes last year's abnormally high number. If you compare 3524 to the 5 yr ave before last year (3523) it is +1.

Your right, the data I was looking at has 3669 five year average which doesn't equal the EIA sheet. There is an note on my data saying the 5 year averages do not reflect changes in EIA methodology. Looking at the data 2011 & 12 match but 08 thru 10 are different so I can only assume that's causing my error. Serves me right for using the wrong data.

Your also right that last year's number does skew the 5 year. There is a school of thought though that says as we continue to add more storage, available storage has increased year on year. Doesn't mean there is more gas in storage, just that we have the ability to put more in. Of course in the post-Hunter/Amaranth world of NG, the only storage being added is high turnover salt.

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Old December 11th, 2013, 06:46 PM   #2536 (permalink)
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SMCJB View Post
I think your comparing the wrong forecasts.
You compared Tuesdays 6-10 day vs Wednesday 8-14.

It's not that significant, and not colder everywhere, in fact it's definitely warmer in the AC & SE, but I do believe this is what the market reacted to.
Just an opinion, and I of course could be wrong.

I'm not trying to get in an argument about this. Since everybody here seems to be short NG, I was just trying to highlight potential fundamental reasons that could support these NG prices.

For what its worth I currently have no outright NG positon, but am short some front to backs further down the curve - which have caused a little pain. :-(

You're correct I had both loaded and I deleted the wrong map.

But this forecast doesn't come out until 3pm. And it wasn't 10 cents worth colder so I don't see the reason for the 10 cent jump.

And since you are short the curve you didn't think prices would go this high either.

Do you think prices were justified to jump in April as much as they did? And what would cause a 30 cent drop in one day? Report was +43 5 yr ave was +67 on that day.

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Old December 11th, 2013, 07:04 PM   #2537 (permalink)
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ron99 View Post
But this forecast doesn't come out until 3pm. And it wasn't 10 cents worth colder so I don't see the reason for the 10 cent jump.

There are multiple models and each model is updated as many as 4 times a day. The big energy trading companies & electricity suppliers have multi-person weather teams that do nothing except interpret these forecasts constantly and pass that on to the trading desks and planning groups. I have heard that it has got to the point now where certain players are getting the raw data itself and processing it themselves to have a time advantage.


ron99 View Post
And since you are short the curve you didn't think prices would go this high either.

There are certain spreads on the curve that I believe have moved as a function of the momentum in the front and the selling pressure in the back, and hence are not supported by the fundamentals. It's these spreads that I have on. It's not based upon an outright price perspective.


ron99 View Post
Do you think prices were justified to jump in April as much as they did? And what would cause a 30 cent drop in one day? Report was +43 5 yr ave was +67 on that day.

If I am thinking about the same day as you I believe there was massive liquidation on that day. If I recall correctly March-April had recently had a short squeeze and some prices were at unsustainable levels. Moves do seem to be very exaggerated though, especially on EIA days. I think a lot of this is due to the computers, and not humans.

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Old December 11th, 2013, 07:05 PM   #2538 (permalink)
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Here is what I was talking about for April.
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NG price is continuous. OI is futures OI for all contracts.

While I do agree some price increase was justified, I don't think a $1.25 jump was justified. Way too many contracts added to OI. The moves seem to be always over doing it because specs are piling in.

Specs went from 82K net short futures to 96k net long futures during that run up. Highest net long ever for specs for the DCOT report.

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Old December 11th, 2013, 08:09 PM   #2539 (permalink)
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I like the way you chart OI and price on the same chart although I don't use continuation charts so the price is a little confusing to me.

If I recall, we had a late cold spell in March and April rallied. Rumor is that several of the Houston based Hedge Funds run by ex-Centaurus traders/John Arnold disciples such as Skylar & Copperwoord, got caught short and squeezed. It's also rumored that John bailed them out on the highs, enabling them to add to their positions on the highs and profit when the market did turn. Of course from my experience I think the opposite of any rumor like this is just as likely to be true as the rumor itself, but maybe that's just the cynic in me.

I believe the day we are both thinking of is Thursday May 2nd when NG dropped almost 30c after EIA reported a 43 BCF build. While your right the 5yr average for that week is a build in the mid-60s the market was caught by surprise as it was only expecting a build of 30 BCF.

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Old December 11th, 2013, 10:19 PM   #2540 (permalink)
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SMCJB, thanks for the info.

On 2/19/2013 specs had 219k long futures and 296k shorts.

On 4/30/2013 specs had 340k longs and 243k shorts.

So not only did the specs get out of 53k shorts but they added 121k longs too. That's 174k NG contracts bought to make that move.
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SMCJB, at what NG price do electric companies start switching to coal? How quickly can they switch?

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