Nat Spreads

I just closed out of my -V/+X at .653, a few things have popped up that concern me now. I'll be back later to type up.

 

So what happened?

Still made 2 1/2 cents, so I'm guessing that more than covers your execution costs.

 

I am interested to see what Papa posts about that, but my guess is he is seeing something that makes him think the production cut backs are kicking in.

 

anyone else see that roughly 15 cent jump around 10:50 or so?

 

I am officially casting off the bearskin rug now, dusting off my horns. As CET stated, the evidence of production decline is showing up now, we all knew it would at some point just when was the question. The last 4 weeks have had injections come in at the lowest end of projections and now tomorrow is estimated to be in the low 60's. On a weather adjusted basis, that is bullish and to me shows a trend of tightening in the S/D balance.

The $2-handle October print now seems rather unlikely, although we will still have a shitload of gas in storage in the end. I also think we will cycle lower at some point in the coming weeks from where we are now, but at this point it seems like short-covering is the name of the game. The production decline will accelerate into Q4 and Q1 and we should cycle back up in price over the coming 12-18 months, barring a financial meltdown in equities of course (there's always something).

I have basically closed out my bearish plays or hedged them, including that -V/+X spread. That spread still can blow out wider, but my immediate worry is it will tighten much more first.

I have put on a piece of the widow maker today at .098 (+H/-J). The risk/reward of that spread is about as good as it gets for this time of year.

Summing it up, I have flipped to short term bullish on covering/position shifting, looking for a pullback in the intermediate term afterwards as summer temps disappear, and bullish long term as we cycle back up while production tries to arrest the decline.

 

Trade of the millenium!!

 

Thanks for all the replies everyone. I have been researching Natural Gas spreads for the past few days on Bloomberg and it has been quite enlightening. Just looked at Papa Roach's recent +H/-J call. 80% correlated to the front month NG YTD. I guess that's why it's called a bull spread! Also I noticed that direct bid/ask on the spreads are much tighter than if you were to execute via each of the legs. Papa, you mentioned that a equities financial meltdown might kill the +H/-J trade. How low can this spread go. I looked at past +H/-J spreads and while they can go contango, it is usually not that much negative like -0.10. You mentioned that you expect NG to rally, pull back, and then rally. So is this position something you're going to hold through the rally, sell intermediate, and buy again later or just hold? Thanks again.

 

Papa and others, do you believe its at all possible to day, swing trade NG directionally? I read your reply about it running you over, but on days like this when its clearly trending... Also with a bullish overall thesis, reduced rig counts, storm season, how about some swing plays? And if so what type of cash on hand would you suggest for each contract bought? Thanks.

 

Where does one find expectations for the storage reports on Thursdays? Thanks all...

 

I have asked this before, but never got a answer. I believe someone posted Platts has the estimates, but I don't know if you have to subscribe/pay to get the estimates. Maybe someone will chime in.