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Option trading in practice – Week 11

19 Jul 2018,

Dear readers and traders, natural gas continued to decline last week and thanks to this, we got with our portfolio to the new highs.

 

 

 

Summary of the week

At the end of last week, we were in profit of about + 1.2%. In our portfolio – due to the decrease in gas prices and the reduction of the delta in BOIL options – we managed to decrease overall delta. We will try again to enter to the short options for BOIL, but this time only if the spot price rises to 27-28 USD.

Obr.1: Vývoj portfolia do 13.7.2018

Figure 1: Portfolio development until 13.7.2018

 

 Changes in the portfolio

In the past week, we rolled over our short position at ETF: KOLD. And we rolled with a small credit our options one strike up and for one month later. We also closed with nearly full profit the June call option for BOIL with strike 29 and added the remaining time premium was supplied through a selling safe call options for UNG with strike of 23.5.

Assignment

Last week, there was one positive thing, namely ETF: UNG assignment to shares. It is a positive signal for strategies that are shorting ineffective ETFs, because the assignment to shares gives us the opportunity to buy back the shares and open a new option. We are still testing this possibility, but I believe we are on the right path.

Fundaments

Last week there was a very slight decline in natural gas production. However, we still estimate that in a temperature-neutral scenario, supply will exceed demand by 3-4 Bcf year-on-year, which is mainly due to a structurally stronger growth in production than structural growth of demand. As meteorological forecasts suggest lower temperatures by the end of July and potentially early August, we should see a relatively solid stock growth in the upcoming weeks.

As the absolute level of stocks is still low, we do not expect structural deficit to reach the 5-year average by the end of the summer season. To the winter we will certainly enter with below-average levels of stocks, which will push the price upwards and therefore it will be better to wait with longer shorts until the BOIL price reaches 27-28 USD again.

 

 

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