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Option trading in practice – Week 10

12 Jul 2018,

Dear readers and traders, there has been another fall in the price of natural gas last week, which meant for us an increased value of the portfolio and return back to positive performance.

 

 

Summary of the week

A large number of the options in the portfolio are now under strike, but the majority has its maturity next month, so we will now mainly wait for the disintegration of the time values.

The fall in gas prices was, in our point of view, caused by combination of further growth in production and relatively moderate temperature forecast, which pushes the balance between supply and demand towards overproduction. In our eyes, the drop in the gas prices was also slightly technical by its nature, as the growth simply needed to breathe a bit.

 

Obr.1: Vývoj obchodního účtu pro obchodování na zemním plynu (stav k 9.7.2018)

Figure 1: Development of the trading account for natural gas (as of 9.7.2018)

 

Changes in the portfolio

This week, we added a few small short positions to call options under the ETF title: UNG. Specifically, we sold the UNG call option for this Friday with strikes 21, 22.5 and 23. We also sold one BOIL call option with maturity in July as it was nicely located above at the money level. Interestingly, for example, the out of money call option UNG with the strike 23.0 could have been sold for 15 cents (54% pa yield thanks to only 3 days to maturity) while at the money BOIL call option with strike 27 offered the price of 0.70 USD (65% pa yield). So, we took the advantage of the quicker disintegration of the UNG option and we entered primarily into these positions.

 

We will continue to monitor the behavior of the options and solve eventual assignment to the stocks or to cash, and we would like to bring you some conclusions during the next week.

 

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