I think (it’s August and it’s hot)….

Posted on 08/03/2011

0


……therefore I am (inclined to use my air conditioning).

I’ve never been confused with Descartes, but some trades are fairly straight forward even if you have no philosophical inclinations.

One of two ideas – depending on how long you care to be positioned in the Natural Gas market.

On the heels of this week’s inventory numbers, NG has fallen into an area of support (low $4.00 range). I sincerely doubt we’ll see Natural Gas prices break 3.90/3.85 over the next month. As such, I would be comfortable selling puts to open.

Sept. options expire in 23 calendar days (8/26).

You could SELL the Sept 3.90 puts for .045 (collect a gross of $450) right now and I would look for those options to go out worthless. I would cover them if they doubled in price (.09 or $900).

3.900P 0.038 0.048 0.038 0.048 +0.008 10:28 480.00

OR…….

Go out another month to October options (55 calendar days until expiration) and sell the 3.80 puts for .085 or $850)

3.800P 0.073 0.085 0.073 0.085 +0.008 09:49 850.00

Expiration break even on the first idea = 3.855 BELOW WHICH YOU WILL LOSE MONEY.

Expiration break even on the second idea = 3.715 BELOW WHICH YOU WILL LOSE MONEY.

Late July/Early August is historically the hottest time of the year in the US. People/businesses consume a great deal of energy/electricity to power air conditioners much of which is, in turn, powered by Natural Gas. Also, we are moving into “hurricane season” which can be very supportive of NG prices.

I prefer the first alternative (shorter duration), with the option to do it again in October cycle if opportunity presents itself.

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