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Diversified Option Selling Portfolio
Started:September 6th, 2015 (11:22 AM) by myrrdin Views / Replies:26,366 / 581
Last Reply:December 2nd, 2016 (01:20 PM) Attachments:38

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Diversified Option Selling Portfolio

Old March 17th, 2016, 06:29 PM   #161 (permalink)
Market Wizard
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myrrdin View Post
I intend to sell Natural Gas puts, probably the NGM P1.5 . In my opinion, all bad news should be priced in.

Seasonals show upwards in the 5-, 15-, and 26-years time frame. Additionally, 5 years which correlate well with 2016, show the move-up in early March.

According to Hightower, NG price is at a level that makes it interesting for power plants to switch from Coal to Natural Gas.

Current price of the June contract is around 1.9 .

I intend to liquidate the short options on a close below the march low.

Best regards, Myrrdin

Hightower is late. Every power plant that can switch to NG has already switched. Coal use down 23.5% YoY in Nov 2015 (latest data). NG use in Nov 2015 up 45.1%.
Coal data http://www.eia.gov/totalenergy/data/monthly/pdf/sec6_4.pdf
U.S. Natural Gas Consumption by End Use

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Old March 17th, 2016, 06:55 PM   #162 (permalink)
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There are some power plants that can (or at least could, not sure if your allowed environmentally anymore) switch from gas to oil, but plants can't switch from coal to gas. Instead what happens is that coal plants get switched off and gas plants run instead. Historically that hasn't been the case, coal was baseload power and gas was only used when demand peaked. This is what they called Economic Dispatch and is best illustrated by the 'supply stack'. Below is a 'supply stack' for PJM (Pennslyvana Jersey & Maryland) copied from a Penn State paper. This is obviously old as it still shows coal as being 'lower' (aka cheaper) in the stack than Gas. But @ron99 is correct, gas units are already running and coal in many cases is now on the margin and only run when demand increases enough to justify it.*

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*It's actually not that simple as it's expensive to cycle (aka stop and restart) a coal plant while its a lot cheaper to cycle gas plants. Hence economics can actually dictate that the less efficient coal plants drop to minimum load at periods of low demand (ie 3am) to aviod the horrendous restart costs.

Getting back to the Natural Gas discussion... EIA reported a 1BCF withdrawal from storage today for last week. This is the third week in a row this sets a record for the lowest withdrawal for this week of the year. Gas Storage levels are now at the highest they have ever been as we switch from withdrawing to injecting. Unless we have a really warm summer (which is actually quiet possible given that February was the warmest Feb on record) one has to wonder where all the gas is going to go in the next 7 months.

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Old March 18th, 2016, 03:12 PM   #163 (permalink)
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Sold the CU C450.

It looks like planting season will begin without serious problems. COT data suggest a move upwards, whereas farmers become sellers at higher prices. This suggest a move sidewards into spring, when weather can become critical.

I intend to sell puts at lower prices.

Sold a small lot of the SJ C9. This is a short time trade, the option will expire next Thursday. There is a large open interest for SJ C9 and SJ P8.8. Very often options with a large oi compared to others expire worthless. Unfortunately the SJ P8.8 did not get to a price level that makes it interesting to sell. I prefer holding strangles in this situation.

Best regards, Myrrdin

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Old March 19th, 2016, 06:25 AM   #165 (permalink)
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My favourite source for information on fundamentals of the grains is the newsletter of Rich Feltes, who works for RJO. I do not copy these reports to the thread, as they are restricted to RJO clients.

Best regards, Myrrdin

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Old March 22nd, 2016, 01:24 PM   #166 (permalink)
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Current short options positions:

CU C450
WN C600
SJ C9

KCU C1.8, C2 (Hedged against CT)
CTZ P0.5

LHJ P64, P68, C74 (Strangle together with the LHQ call)
LHQ C84
LCJ C140, C142 (Hedge for the longer term puts)
LCM P126
LCQ P120

SIN P12, C21 (Strangle)

Currently my portfolio is slightly bearish commodities. Strangles in LH, LC, SI, KC hedged against CT. Grains and beans are not hedged. The portfolio will be close to neutral after the expiry of the LCJ calls on April, 1st and the expiry of the SJ calls the day after tomorrow (if I am not stopped out earlier ...).

Best regards, Myrrdin

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Old March 22nd, 2016, 04:08 PM   #167 (permalink)
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Bought back the SJ C9 with a loss of approx. 100 %. Fortunately it was a small lot.

Still high probability that SK closes at 9.00 on Thursday. But risk / reward are not in balance.

Best regards, Myrrdin

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Old March 23rd, 2016, 11:37 AM   #168 (permalink)
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Sold half a lot of GCQ P1100.

Intend to add at lower prices.

Additionally added a small lot CLK C42 with a tight stop above the March high.

Best regards, Myrrdin

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Old March 24th, 2016, 07:01 AM   #169 (permalink)
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myrrdin View Post

Additionally added a small lot CLK C42 with a tight stop above the March high.

Bought back the CLK C42 with a profit of 50 %.

Sold the CLK C40. Intend to buy back at 50 %.

Best regards, Myrrdin


Last edited by myrrdin; March 24th, 2016 at 07:16 AM. Reason: Added the sell of further calls.
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Old March 27th, 2016, 11:08 AM   #170 (permalink)
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Current short options positions:

CU C450
WN C600

KCU C1.8, C2 (Hedged against CT)
CTZ P0.5

LHJ P64, P68, C74 (Strangle together with the LHQ call)
LHQ C84
LCJ C138, C140 (Hedge for the longer term puts)
LCM P126
LCQ P120

GCQ P11
SIN P12, C21 (Strangle)

CLK C40

I bought back the LCJ C142 with a profit of approx. 70 %, and sold the LCJ C138 instead.

Furthermore I bought 1 CU future per 5 CU C450 short options to achieve a delta neutral position.

Best regards, Myrrdin

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