NG roll over

NG couldn't sustain the recent rally. I rolled over 3 contracts from Nov to Dec. Note that I still have 3 call options sell. Nov options expire on Tuesday. If somehow NG rally and close above 5 or 5.25 before options expire, I have to sell Dec and buy Nov again to offset. What a pain in the butt.

Sold 3 Nov NG at 4.811

Bought 3 Dec NG at 5.508

Once options expire, I'll try to sell Dec options. The wait game starts again...

Thursday

Looks as if my fate is dependent on NG inventory report.

The market is expecting an increase of +22B compared to +58B last week. Although we had two cold weeks, I'm not sure if it can beat (lower increase than +22) the expectation.

How people are going to react is always another story as well. Markets always have something better or worse than expected as well as some strange thing called 'whisper'.

What I'm really not comfortable about the current situation is yesterday's move. We had a big topping candle. The 6.2 level in Dec contract is really big. Big guys who have been shorting seem to be defending that level.

I was hoping to buy some puts yesterday. Nov 5 put came as low as 0.07 which was still higher than what I would pay (0.05 or $500), so here I am sitting.

It seems stocks want to take a break too, which will probably strengthen dollar, weaken gold / oil / other commodities. I do like grains especially wheat. I wanted to buy pullback to 480 level, but it just shot higher yesterday.

NG update

I'm in a dilemma.

Currently I have 3 long NG outright, two 5.25 call sell and one 5 call sell.

The Nov options expire next Tue (10/27). I would normally leave this alone, but I have a few personal reasons to reduce market exposure. Still with 5 trading days to go, a lot of things can happen considering how volatile NG can be. What's worse (or better) is NG inventory report is on Thursday, which can easily bring NG down. So here are a few options. If you never sold options this might be educational.

1) Leave it alone.

Ideally, NG closes above 5.25 and my 3 options will get offset and I'll be flat. In other words, I keep all the premium I wrote, I'll get assigned 1 short from 5 and 2 short from 5.25. Since I'm holding 3 long, they'll get offset. This is the best covered-call scenario could happen.

The risk is I may have to roll-over again and wait for the next options expiration day!

2) Buy puts.

One option is to buy puts. The problem, however, is even with only 1 week to go, there's just so much premium (mainly due to volatility of NG). With covered-calls, my profit is limited whereas risk is unlimited (or until NG gets to zero).

I think NG will push over 6.2 on Dec contract to clearly run stops above. When that happens, I think 5.25 Nov call should be less than 0.05 (or $500), which is pretty cheap. (Since when $500 options are considered cheap???) I can then think about buying put options that time.

If NG doesn't rally and just die from here, I may be stuck with NG for another month.

3) Cover 3 options sell and exit 3 futures long

This is probably not a good idea. The whole reason behind writing calls was to take advantage of inflated panic / premium in NG markets. FYI, 5.25 call still has 0.15 or $1500 while NG is traded at 5.2. The out-of-money options with 5 days left still has $1500, and I don't think I want to give up on that. Good news is I can cover all the NG right away freeing up $25000 margin.

4) Buy 5.5 calls and exit 3 longs at the same time.

This is probably the least likely because it's just a lot of if(s).

a. NG closes above 5.5: I'll be flat because I'll get assigned 3 shorts from sell options and 3 longs from call options.

b. NG closes between 5.25 and 5.5: All call options become worthless, and I'll get three shorts assigned, so exit asap.

c. NG closes between 5 and 5.25: All call options become worthless as well as 5.25 call sell. I'll get 1 short assigned from 5 call, so exit asap.

d. NG closes below 5: All call options buys and sells become worthless. Do nothing.

I would like to see where NG is traded before the inventory news and take actions from there. There could be still a lot of catch-up for NG to do with respect to CL.

Sold 1 Nov NG at 5.156

I exited 1 NG long at 5.156.

I'm still holding 2 of 5.25 call sell and 1 of 5 call sell.

If you were a market-maker...

The above is Natural gas chart. As you can see, the Dec contract is testing 5.8 level. We tried that level in late Sept, but quickly got rejected, tried again and got rejected twice. Sure it looks like a strong resistance.

Now if you were a market maker what would you do? Think about how many stops are there above 5.8 level. I do like the fact that we came down to 5.2 level a few days ago before we got to 5.8 level to suck more sellers. NG markets got pretty quite at this 5.8 level right now and I'm pretty sure it'll test above 5.8 to see if it'll not only run stops but also to see if it brings new buyers.

What's more interesting is 6.2 level. If you've been shorting / trailing NG, where would your stops have been? Aggressive stops should be around 5.8-5.9, but you'd be definitely out if NG goes above 6.2.

Sure it'll just test and come right back and NG tends to do that many times. My plan is to cover all of my NG positions onto this type of move.

Note that the front month (Nov) contract acts slightly differently as spread widens and tightens. Since the Nov contract expires next week, I just wrote about Dec contract.

I'm still holding 1 Nov 5.0 call and 2 Nov 5.25 Call.

NG update

After missing 4.75 call sell at 0.6 within a few ticks, the value dropped to 0.2 or so, which means I could have made $4K. Not only that, NG just couldn't close above 5, so today it's tanking now with a nice head and shoulder top. I'm somewhat hedged with 5 call and 5.25 call, but this definitely tastes sour.

I was looking to get out all NG by this month's options expiration, but looks like the wait game starts again.

Great depression #2

Whenever people talked about the similarity about Great Depression, I thought it was non-sense. The problem is different, the reaction is different and the solution is different. Furthermore, if people are so smart about it, why didn't people prevent it from happening in the first place?

Yesterday Aussie raised their key interest rate, which is the 1st among G20 countries. Everybody thinks US and other countries will follow. Was that a good decision? I do not think so. Shortly after the great depression, in fact markets did rally quite a bit, but then people started worrying about dollar and started tightening the money supply. In my opinion, that's actually the reason for the Great Depression not the initial reason.

We are facing the exact same problem right now. The initial problem was sub-prime / credit crisis / real estate bubble etc, but we're at the exact same place where we're asking ourselves 'too much money flowing'?

I'm a big fan of Ben Bernanke, the fed chairman. He's an expert on how we could have avoided the Great Depression. So far he's done a great job. It could have been better, but I'm sure everybody agrees we could have been a lot worse than now. I hated Alan Greenspan, the former fed chairman. I think he caused all the problems to bypass dot-com bubble.

If Bernanke is smart enough he shouldn't raise the rate so soon. We're at a record high deficit, but for example, 1 million dollar in savings now probably is 1/10 of the purchasing power in 30 years, so it may not be as bad as it sounds in terms of the deficit.

In addition, real-estate markets haven't been improved at all. People keep asking what they should do between short-sale and foreclosures, loan default, getting rid of 2nd home, credit card settlement etc. Sure stocks lead 6 month ahead of economy. If that's the case, why people still face the record high foreclosure? Why did Chase bank cut my credit card line from $30K to $1500 without any reason.

I understand why people buy gold. But what I keep my eyes on is bonds. With all the inflation worries, why bonds is around 120? I hope policy makers get clues from there.

Bummer

NG rallied to 5.12 level this morning and my 4.75 call sell order was close to get filled but no luck. Then NG tanked. In any options, the best liquidity exists at the money. The bid/ask on 4.75 call options was at least $400 apart! Considering YM is only $5 apart, that's quite a bit. I'll leave my order alone for now.

5

NG just can't get over 5. It went as high as 5.008 to run very minor stops, but who would put stops within 10 ticks above 5 considering how volatile NG is. To see a solid stop run, I'd say it has to trade at least above 5.05.

There's obviously a lot of battle going around 5. I do like the inverted Head and Shoulder pattern, and the neck line coincides with 5, which is really critical in my opinion. I plan on selling 4.75 call for 0.6ish. To get there futures needs to be traded around 5.2 I think.

For lumber, as usually, nothing.

Update

NG just couldn't break 5 level. I thought it'd at least go over 5 to run stops. It tried a few days, and today it finally gave up. From what I've seen if things go down like this before the NG inventory report, either slight pop-up and die or die with a lot of blood.

I have 3 calls written, so it's helping. I tried to sell 4.75 call which would have helped a lot, but it just dropped before a fill.

Lumber is hanging around the new low. Even if price is at 170ish, and seems higher than 140 back in Spring, it's because of roll-overs.

A lot of news have been released. The theme now is up before the news and sell after the news. All the data is not better than expected, so just sell. There are no more buyers left and those who bought have been ready to exit. Sellers are slightly coming back but not yet.