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Diversified Option Selling Portfolio


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Diversified Option Selling Portfolio

  #1521 (permalink)
 ron99 
Cleveland, OH
 
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yurahoang View Post
Thanks so much Ron thats very helpful!

What is your opinion about NG? Im not sure what I am missing, but I feel like NG prices are a bit low for the current fundamentals. I see that the weekly storage is very close to the 5 year average levels, production is higher (has been increasing for years) but so is the consumption (thus the level of storage not being out of ordinary), export and import numbers are not unusual and are a very small part compared to domestic consumption. The weather is definitely warmer than average, but looking at 2015-2016, the price was around the same level as now (maybe even a bit higher), weather was also very warm but the storage was way higher. In addition the average weekly outflow for the last 2 month of this year is greater than the same number of 2015-2016.

So comparing this year and 2015-2016, I think the price for NG right now is a bit low. Can someone tell me what am I missing?

In addition, why NG prices almost do not react to cold weather blasts? I was in New York area during Thanks Giving, there was a snow storm that I barely escaped and NG prices barely moved up. I was under impression that NG prices are extra sensetive to that kind of information during this time of the year, but I guess Im wrong here, I just want to know why.

The difference between 2015-2016 and now is that there are many new very large pipelines supplying the market. They can supply NG to areas in need at a much greater volume than 4 years ago. Thus the level of NG in storage is not as critical.

Also be careful of looking at short term regional weather (New York area during Thanks Giving) and applying it to the whole US market.

Here is mean temp anomaly for Thanksgiving week. It was above normal for that week.


Here is the following week. Again above normal for most of the US.


https://www.cpc.ncep.noaa.gov/products/tanal/temp_analyses.php

I am definitely not getting long NG here.

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  #1522 (permalink)
 
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 SMCJB 
Houston TX
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yurahoang View Post
In addition, why NG prices almost do not react to cold weather blasts? I was in New York area during Thanks Giving, there was a snow storm that I barely escaped and NG prices barely moved up. I was under impression that NG prices are extra sensetive to that kind of information during this time of the year, but I guess Im wrong here, I just want to know why.

You will see more volatile prices at specific locations (Algonquin, which is basically Boston, is the most expensive and volatile gas in the country, in mid November it got as high as $6/$7) but as @myrrdin said, the effect on Henry Hub prices is more dependent upon the expected storage situation. As long as the market thinks we have enough gas in storage for the winter, then this winter will price basis storage economics for next winter! ie at a discount not a premium.

There are markets for these different locations, but they are only available on ICE, and very few retail focused FCMs offer them.

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  #1523 (permalink)
 
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 SMCJB 
Houston TX
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yurahoang View Post
What is your opinion about NG? Im not sure what I am missing, but I feel like NG prices are a bit low for the current fundamentals. I see that the weekly storage is very close to the 5 year average levels, production is higher (has been increasing for years) but so is the consumption (thus the level of storage not being out of ordinary), export and import numbers are not unusual and are a very small part compared to domestic consumption. The weather is definitely warmer than average, but looking at 2015-2016, the price was around the same level as now (maybe even a bit higher), weather was also very warm but the storage was way higher. In addition the average weekly outflow for the last 2 month of this year is greater than the same number of 2015-2016.

Storage for the week ending January 3rd, 44 BCF Withdrawal, smallest withdrawal ever for this week of the year!

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  #1524 (permalink)
yurahoang
Hanoi, Vietnam
 
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ron99 View Post
The difference between 2015-2016 and now is that there are many new very large pipelines supplying the market. They can supply NG to areas in need at a much greater volume than 4 years ago. Thus the level of NG in storage is not as critical.

Also be careful of looking at short term regional weather (New York area during Thanks Giving) and applying it to the whole US market.

Here is mean temp anomaly for Thanksgiving week. It was above normal for that week.


Here is the following week. Again above normal for most of the US.


https://www.cpc.ncep.noaa.gov/products/tanal/temp_analyses.php

I am definitely not getting long NG here.

Hi Ron, thank you for the information I was definitely wrong in assuming the US weather using a small region's weather. However I did not fully understand the statement before: can you please explain more why storage is not as critical now that there are larger pipelines directly to the places in need? That means NG will go straght from production to those places via pipelines, while in the past it had to go from storage (via?...) so it takes longer? I apologize in advance for my poorly basic understanding of NG production/transportation.

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  #1525 (permalink)
 ron99 
Cleveland, OH
 
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yurahoang View Post
Hi Ron, thank you for the information I was definitely wrong in assuming the US weather using a small region's weather. However I did not fully understand the statement before: can you please explain more why storage is not as critical now that there are larger pipelines directly to the places in need? That means NG will go straght from production to those places via pipelines, while in the past it had to go from storage (via?...) so it takes longer? I apologize in advance for my poorly basic understanding of NG production/transportation.

Sorry for not answering question sooner.

The increased volume of NG able to be transported via pipeline means that when there is a need in an area the ability to meet that need is easier because not only can they get NG from storage but also directly from NG producing areas at an increased level than possible previously.

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  #1526 (permalink)
 myrrdin 
Linz Austria
 
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For all the Euroeans here: Tomorrow is a holiday in the US.

Best regards, Myrrdin

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  #1527 (permalink)
yurahoang
Hanoi, Vietnam
 
Posts: 29 since Nov 2018
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This post is similar to the one from "Selling options of futures", but Ill just post it here again in case people dont check that thread as much anymore:

To all who is starting, or have been trading for a while but is still new and want to improve, I just found a very short but good material.

Was reading a book "Higher probability commodity trading" by Carley Garner and there is a short but very nice section about Selling Options. Very clear, easy to understand, no bias, shows clear advantages AND disadvantages. Lists a few examples of terrible trades, and bad things that can happen. A very nice read.

Im thankful to James Cordier for introducing me to this strategy, but his books is totally a sales pitch, not realistic. He probably has a remarkable record, but recently I've been digging into his articles where he makes analysis and gives trade recommendations, and I gotta say that in a way he was a disaster waiting to happen (and it happened). Very risky strategies. The books gives nothing but an illusion, so should be taken with a grain of salt. Carley Graner's book can be a great addition to anyone who has read James Cordier's book.

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  #1528 (permalink)
 myrrdin 
Linz Austria
 
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yurahoang View Post
This post is similar to the one from "Selling options of futures", but Ill just post it here again in case people dont check that thread as much anymore:

To all who is starting, or have been trading for a while but is still new and want to improve, I just found a very short but good material.

Was reading a book "Higher probability commodity trading" by Carley Garner and there is a short but very nice section about Selling Options. Very clear, easy to understand, no bias, shows clear advantages AND disadvantages. Lists a few examples of terrible trades, and bad things that can happen. A very nice read.

Im thankful to James Cordier for introducing me to this strategy, but his books is totally a sales pitch, not realistic. He probably has a remarkable record, but recently I've been digging into his articles where he makes analysis and gives trade recommendations, and I gotta say that in a way he was a disaster waiting to happen (and it happened). Very risky strategies. The books gives nothing but an illusion, so should be taken with a grain of salt. Carley Graner's book can be a great addition to anyone who has read James Cordier's book.

I agree. This book is interesting for every trader - especially for beginners. But also experienced traders find interesting advice.

Best regards, Myrrdin

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  #1529 (permalink)
yurahoang
Hanoi, Vietnam
 
Posts: 29 since Nov 2018
Thanks Given: 212
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Hi, I have a question about trading options:

When I look for opportunities to sell, I see that sometimes markets can have this characteristics: the delta jumps, price jumps and sometimes bid/ask spreads between different strikes is small. For example, if I look to sell Call options for Corn, and I look at strike prices from 400 to 500 (400 - 405 - 410 - 415 -....-485 - 490 -500), the delta gets smaller the further away from the current price I go, but it gets small in smaller increments. Which means I can find options with delta of 10, 9, 8, 7...etc or even between 10 and 9, between 8 and 7.... all the way to 2 or even 1. I call these markets "deep", and I found that it is usually good to sell in these markets, of course provided that fundamentals/seasonals/COT data/trends are working for you too. I find more markets like this when there seems like more people are interested in trading and the volatility is higher, for example during growing season for grains. But thats not always the case.

On the other hand, some markets are not that "deep": delta can jump from 12 to 10 to 7 to 4, without anything in between. Same goes for price of those options, for example if I dont want to get an option with delta 10 and price 8-10 ticks, the next best option is delta 7 and price 4-6. I tend to stay away from these kind of markets, but of course I also look at other things like fundamentals/seasonals/COT... Those are just examples, but I hope you get what I mean. At this moment, I see Cocoa options market seems to be more or less like this, or even a Corn market.

Can anyone please explain what does it mean, and what are the things we as options seller should avoid or should seek?

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  #1530 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
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Trading: Commodities
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yurahoang View Post
Hi, I have a question about trading options:

When I look for opportunities to sell, I see that sometimes markets can have this characteristics: the delta jumps, price jumps and sometimes bid/ask spreads between different strikes is small. For example, if I look to sell Call options for Corn, and I look at strike prices from 400 to 500 (400 - 405 - 410 - 415 -....-485 - 490 -500), the delta gets smaller the further away from the current price I go, but it gets small in smaller increments. Which means I can find options with delta of 10, 9, 8, 7...etc or even between 10 and 9, between 8 and 7.... all the way to 2 or even 1. I call these markets "deep", and I found that it is usually good to sell in these markets, of course provided that fundamentals/seasonals/COT data/trends are working for you too. I find more markets like this when there seems like more people are interested in trading and the volatility is higher, for example during growing season for grains. But thats not always the case.

On the other hand, some markets are not that "deep": delta can jump from 12 to 10 to 7 to 4, without anything in between. Same goes for price of those options, for example if I dont want to get an option with delta 10 and price 8-10 ticks, the next best option is delta 7 and price 4-6. I tend to stay away from these kind of markets, but of course I also look at other things like fundamentals/seasonals/COT... Those are just examples, but I hope you get what I mean. At this moment, I see Cocoa options market seems to be more or less like this, or even a Corn market.

Can anyone please explain what does it mean, and what are the things we as options seller should avoid or should seek?

Looking at the CCK options, they are "deep". Delta moves very regularly.

Please be sure to check delta during trading hours, the best thing is to check end of day data. And check options with approx. 100 days to expiry or more. Options with only a few days to go show a different behaviour.

Best regards, Myrrdin

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Last Updated on May 26, 2022


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