Selling Options on Futures?

December 13th, 2013, 02:30 PM

ron99

I wish I could figure out a way to know when to buy options and make the big bucks.

Mar 7 NG calls were at 1 tick. Now they are at 30 ticks.

2,900% ROI with minimal risk.

You are not the only one -

There is still a lot of volatility priced in the premiums. We are down 1% and the option premiums are still ballistic. Markets expecting upside move?

December 13th, 2013, 02:44 PM

I'd say it is a sign that the market anticipates increased volatility on the underlying. Could be either direction.

kevinkdog · December 13th, 2013, 02:45 PM

eudamonia

I'd say it is a sign that the market anticipates increased volatility on the underlying. Could be either direction.

Are the puts showing any increased volatility?

December 13th, 2013, 02:47 PM

kevinkdog

Are the puts showing any increased volatility?

They are, however not as much as the calls.

December 13th, 2013, 02:48 PM

kevinkdog

Are the puts showing any increased volatility?

Yes, although that could be because the market is actually down

December 13th, 2013, 03:59 PM

A question for the experts:
The March call premiums being as out of control as they are (ie: the 7.00 strike going in the 250 range), would this not be at least one indication to sell? I don't have the stomach for this volatility, but if it's purely volatility that's propping up these massive premiums.

Just wondering if anyone has any thoughts...

December 13th, 2013, 04:36 PM

ron99

The 22 largest areas by vol traded (>200k) on the ICE Day Ahead Natural Gas Price Report (after deleting the one that dropped 0.780) averaged a 0.086 drop in prices today.
Henry dropped 0.045

Remember today is a weekend package (Sat-Mon) and demand is normally a little lower on Sat & Sun for obvious reasons.
You see Algonquin printing $32.89 on a respectable 128k MMBtu

December 13th, 2013, 04:44 PM

19-Dec EIA Release EARLY Estimates.
First estimates coming in, still subject to a lot of changes.
First survey I have seen had 17 respondents and an average of 256.2, median 258 and a standard deviation of 19.0
Range was 200 to 280, but take out high and low and range was 240-280.
If you drop High and Low the average would increase to 258.4. median still 258, standard deviation 11.9

December 13th, 2013, 04:47 PM

christopher99

A question for the experts:
The March call premiums being as out of control as they are (ie: the 7.00 strike going in the 250 range), would this not be at least one indication to sell? I don't have the stomach for this volatility, but if it's purely volatility that's propping up these massive premiums.

I don't have time to talk in detail now, will try over the weekend, but try googling "Natural Gas March April" and/or "Natural Gas Widowmaker".

As Ron has pointed out, NG supply picture has changed a lot in the last few years... but still probably an interesting research project.

December 13th, 2013, 07:27 PM

https://www.cmegroup.com/education/market-commentary/energy/2013/12/pre-open-nat-gas_607.html

I'm going to miss reading Dominick's reports daily that is for sure.

Some key points that he brought up in the latest report that I think are particularly interesting:

Quoting

The eight to fourteen day forecast projects the cold air moving south and engulfing a much larger portion of the US with below normal temperatures and some normal temps moving down south. The level of heating Degree Days (HDD) is likely to be well above normal during the period December 20th to the 26th or Christmas week. The call on Nat Gas for heating related demand will be above normal during this period of time and thus will have a negative impact on the weekly withdrawal level.

Quoting

The largest percentage increases in electric-sector consumption of natural gas came from the Midwest and the Midcontinent, up 183% and 155%, respectively. Texas, the second-largest electric-sector gas consuming region, increased by 73% and saw the largest volumetric increase, and the Southeast, which is most reliant on electricity for home-heating, consumed 20% more natural gas to generate electricity.

Selling Options on Futures?

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Selling Options on Futures?