Recap

6/27

Sold 1 Aug NG at 2.951

Sold 1 Sep NG at 2.926

6/26/2012 (NG rollover)

Sold 1 July NG at 2.674

Bought 1 Sep NG at 2.737

5/24/2012 (NG rollover)

Sold 1 June NG at 2.65

Bought 1 Aug NG at 2.763

4/24/2012 (NG rollover)

Sold 2 May NG at 1.983

Bought 1 June NG at 2.075

Bought 1 July NG at 2.19

3/27/2012 (NG rollover)

Sold 2 Apr NG at 2.191

Bought 2 May NG at 2.285

3/7/2012

Sold 1 Apr NG 2.45 put for 0.215 ($2150) less commissions ($3)

2/23/2012 (NG rollover)

Sold 1 Mar NG at 2.589

Bought 1 Apr NG at 2.728

1/26/2012 (NG rollover)

Sold 1 Feb NG at 2.563

Bought 1 Mar NG at 2.60

1/19/2012

Sold Feb NG 2.4 put for 0.105 ($1050) less commissions ($3)

1/5/2012

Sold Feb NG 3 Put for 0.125 ($1250) less commissions ($3)

Flat on NG

Before I went to work today, I placed an order to sell 1 Aug NG at 2.951. At that time the price was about 2.8, so I thought it'll be a few days to get to 2.9. Shortly after I arrived at work, I received a text saying I got filled. To my surprise, my sell order was filled. The NG shot up to 2.97 level.

I opened TOS and started watching a bit to decide what I should to with my 2nd contract. This is a perfect example of why I'm not a good trader. When a trade goes against me, I keep telling myself, it'll come back, so I hold 'indefinitely'. On the other hand, if it goes is in my favor, I'm dying to pocket any profit. Do you see here, reward vs. risk is probably like 1:100, designed to lose money.

I placed a stop order at 2.926 (based on Sept contract) on the 2nd contract and yes I got filled, not because the price got down, but I accidentally placed a sell limit order not a sell stop order. Execution error. Did I get back in? No. I was thinking about it, but I think holding 2 lots based on my portfolio was too much. I was at one point -$15,000 and it was painful. I exited with a whopping +$250. I think there's a serious problem with me and I need to reevaluate my brain and maybe a whole trading career.

This is a major breakout to upside. The strong W pattern confirms, but I'm afraid if this will be a stoprun and we head down. If this is a true break out, it'll go further upside and will drift back to 2.8 level. I will do another analysis at that time. I'll trade QG instead of NG.

Sold 1 Aug NG at 2.951
Sold 1 Sep NG at 2.926

NG roll over

I executed the following trade today:

Sold 1 Jul NG at 2.674
Bought 1 Sep NG at 2.737

The behavior or NG doesn't make sense (if it ever made sense, I would have been rich already, ha). I think the path of least resistance is to upside and takes out the recent swing high going for 3, but it doesn't seem to be moving. Worse yet, I don't like the pattern we're forming right now, a typical topping pattern.

Usually after a thrust move, consolidate for a while and it moves again. That is the strongest move and that's the high probability trade. It may be a still consolidating pattern, but my patience is running out especially because NG can move anywhere anytime. I wouldn't be surprised if it goes below 2 again or above 3. Fundamentals still look good: Hot weather, hurricane related shutdowns, low inventory build etc... I strongly feel that this is when technicals meet fundamentals.... 'except the price.'

Nonetheless, markets are always right, right? I'll sit tight and just watch.

Time to add

In the next few days, I'll wait for a pullback to add. When we went to 2.8 last time, I was not quite convinced on the up-move. Today we had about 0.3+ move which is about $3000+ per contract and I'm convinced that this is a legitimate bottom. 

Double-bottom is one of the strongest bottoming patterns and I expect we'll consolidate for a while, but will eventually take out the 2.8 level. I'll add one soon and exit one out a little above 2.8 and ride the rest.

NG free fall

7 days in a row. It's definitely a dejavu. I was looking to peel one off around 2.9 level, but it got as high as 2.85 and  now at 2.3, ouch. I thought about buying puts at that time, but I thought it'd give another push higher. Had I bought a put, I would have had to wait for a higher price.

At this point, I really don't want to buy puts because, when markets are going down, puts get inflated and I do pay a lot of premium. What I should do is to sell another put, but I'm not sure if I want to fund more money to my trading account not to mention feeling as if adding to a loser.

The question is will it make a lower low or higher low... If it's a lower low, I'm screwed!

NG rollover

I rolled over 1 June NG to 1 Aug NG.

I normally just sell at market and buy at market, but this time I tried to time by selling June contract and wait to see if it drops down a bit so that I could buy at a lower price. Stupid me, it started going back up before I bought the Aug contract, so by the time I bought it there was a gap of $100. Had I bought immediately, I could have saved $100. Lessons learned.

Sold 1 June NG at 2.650
Bought 1 Aug NG at 2.763

NG at 2.5 month high

I have still debating between two ideas:

1. Selling one at b/e outright while holding the other for more profit if we ever get there.

2. Write 1 call options for a few hundred $$ profit while holding the other for more profit.

I'd like to get Jul 2.75 calls for $2500 or more, but I don't see much inflation in calls yet, which is probably good if options you're holding is well in the money and you want to swap it with a lower cost option since premiums are low.

I think buyers are still cautious and a lot people are still betting on shorts, which is maybe why we're going up. Now once buyers start coming in, we'll see inflation of calls, gap up of 4-5% overnight, $3000+ moves etc easily...

Today's move is very nice. I'm wondering if we'll close strong or just fade out. There are stops sitting around 2.6, so the logical area to go right now is 2.6 and up. Huge stops sitting above 3, which is the game changer in my opinion and that's what I'm aiming at....

PS. In 20/20, I'm kicking myself why I didn't buy at 2 and why I didn't add when it pulled back to 2.4... This explains why I'm not a good trader.

Pull-back expected in NG

We're sitting above 2.4 right now and today's inventory data came short of the consensus (30 vs. 34), which is a good news for bulls. However, I see this is a profit taking opportunity. We had a huge run from the 10 year low to where we're. The best possible scenario is we hold 2.4 level for a few days and do another leg up. Resistance becoming a support, right?

I'm looking to sell calls, but premiums are just not there. I need a few solid days, meaning open at the low of the day and close at the high of the day. Remember those thick green bars??

Another good news is Baker-Hughes gas rig count shows we're sitting at 611. I think 600 is the magic number just like that's what lots of traders are looking for. I'm wondering if tomorrow report will show below 600. However, note that with the new shale method, even at a low rig number, efficiency is quite high, or producers can quickly start producing again.

Early Summer cooling demand is another thing to be looking forward to. It seems power outage does a big role in nat gas consumption and/or a lot of companies are changing from coal to nat gas to produce electricity. Now that Winter heating demand was very disappointing, I'm hoping Summer demand is high.

Regardless, it's still a long way...

NG at a critical area

Nat gas is at a critical area. We had a bounce off the 10 year low, but not that significant imo. 2.4 is a huge resistance because it's not just prev low, but also if we break and close above (preferably 2 days in a row), it'll be a higher high. We haven't had any higher high and higher low for a long long time in Nat gas. If this turns and head back down, I expect a new low.

Let's close above 2.4 and 2.6. Then above 3. We'll see more short coverings and new buyers. I'd be fine if it bounces around between 2.2 and 2.4 for now!  Still a long way regardless.

NG roll over

Roll-over time already!

Sold 2 Apr NG at 1.983
Bought 1 May NG at 2.075
Bought 1 June NG at 2.19

Note that I rolled over 1 NG to June, which is two months out. I did this because not only I think it will take a long time to pan out, but also, to avoid a negative spread often found in a front month contract. What this means is if NG is going up, chances are front month contracts will likely up go faster, but on the other hand, if it goes down, it'll go down faster. Since I'm holding two contracts, I'd like to spread out a bit.

As of today, I'm about -$14,210 YTD. Ouch.

NG roll over

NG made 10 year low today. I don't think my puts will be out of money, so I just rolled NG contracts from Apr to May.

Sold 2 Apr NG at 2.191

Bought 2 May NG at 2.285

My new break-even based on May contract is 2.692

Next week

The Apr options expire on 3/27. My 2.45 put is well in the money. From that position, I'm +$500 or so, but was +$1400 at one point. I was hoping after today's inventory report, it'd go up, but the opposite was true.

The overall theme of NG is that it goes up very little and comes down hard easily. I liked the way it acted over the last few days. Very quite, narrow ranges, not much up or down, which means it was bottoming.

That didn't last long. We're about 5 cents away from the 10 year low. With 3 days to go, my put options will probably be assigned a long position, so I need to roll over on 3/27. At that point, I would be holding 2 longs with the average price of 2.596. Once I roll to May contract, it'll be around 2.7 due to contango.

NG can get very volatile from time to time. I feel as if all I need is two to three solid days. To make that happen, we need some sort of news. At this level, buyers are definitely sitting aside and commercial sellers seem to lock whatever price they can get. Weather doesn't seem to help much and neither does the rig count. They are certainly worried about overflow of underground storage tanks.

A question I keep asking myself everyday is should I add or just sit out.

I'm also looking at other contracts too. It seems both Wheat-Corn trade and Gold-Platinum are available again. I'm hesitant on this because TOS doesn't give you any margin break on spread unlike other good brokers. In addition, what if I need more bullets on NG...

Apple puts also seem interesting. Everybody likes Apple stock. People who lost money in others bought all the AAPL they can afford and sitting on them. If this starts coming down, I think you'll see 550 pretty quick. Chart patterns already look like topping. I'm thinking buying an out of money put and simply forget about it risking 100%.

Close high of the low bar

A very interesting day on nat gas. Today is the first time it closed the high of the low bar (on daily) after making a 10 year low. There were hammer patterns in the last few days, but never had a follow-through (meaning the next day didn't close the high of the previous day's high).

I watched the close of NG and it seemed as if lots of stops run as people tend to put stops just above previous day's high. I'm attempted to add more here, but that will make me feel as if I'm all in. Any thought?

NG update

Only 2 positive days out of 14 recent days. I'm definitely on the wrong side. Sure, it'll bounce some day, but if I were smarter, I would have taken advantage of this down move first before buying it. I feel quite dumb to say the least.

As winter seems to be over, we're into stock-building season again. People are not talking about storage being over-capacity. In other words, there's just too much gas and they can't store gas they collect. What do they do in this case? You'd think not to collect, but from what I hear, they dump and keep pumping new gas.

Sold 1 Apr NG 2.45 put for 0.215

I just sold 1 Apr NG 2.45 put for 0.215 (or $2150 less commissions). For this trade, I want to get assigned, so I went deep in the money. If I get assigned on this on expiration (3/27), my break-even would be 2.5955.

Overall NG looks pretty bad. Charts don't show any sign of bottoming. The only support is that it can't go to zero. Heck, it even broke the triangle to the downside. I planned on scaling in every 0.5, but I waited just to be careful.

What can I do when there's 10 year historical low....

NG roll over from Mar to Apr

Today I rolled over my NG long from March to April contract:

Sold 1 Mar NG at 2.589

Bought 1 Apr NG at 2.728

My new break-even is at 2.955.

NG Update

Not much to update. At the end, I didn't sell 2.5 put. I was very close to pull the trigger on the 2.5 put for $2000 or so, but chickened out. It would have lowered my break even to $2.61, but to be honest I was scared and I was worried about NG dropping to below 2, which was probably a sign that the short term bottom was in.

I've been watching NG quite closely, but I just couldn't figure it out. Sometimes it's technical, and sometimes, it just doesn't matter and does its own thing. Regardless, it just seems so heavy. It goes down easily, but goes up very slowly.

The March options expire on Friday and the futures expire on Monday. I was hoping to exit before the expiration, but my break-even is no where near. The chart patterns don't look that bad, but I think it it was going to higher, it would have been yesterday or today. Long bottom tails for two days in a row are good signs, but we have an inventory report tomorrow, which can invalidate everything. They are estimating about -150 B, which is too much consumption based on recent 50s (heck, today it's 65! where normally 40s).

Just like the 2.5 put sell, I felt I had multiple chances to add as I said I'd like to scale in every 50 cents, but failed to execute and I'm quite frustrated about myself. I didn't have a solid plan or ability to trade at the end, I suppose.

I'm flying out of country on Thursday night, so I might roll over my futures a day early instead of Friday. I will check options price to see if I should buy cheap puts to hedge, but premiums will still be high with even 1 day left.

NG new order

NG is about -7% today. I expect this to test the low. Accordingly, I placed an order to sell 2.5 put.

NG update

I probably shouldn't even look at what NG is doing everyday, considering it's a position trade, but I treat it like a day trading, which is completely wrong. I don't know why and I didn't have this kind of issue last time. After seeing $6K+ down, maybe I lost confidence in me.

On Friday, I placed an order to sell at 2.852 figured it might gap up after the weekend (based on the Friday's close). Markets also like to test previous high / low to see if it'll attract buyers and sellers and run some stops. I think the previous swing high was 2.830s so I figured, it'll spike higher to 2.850s, which give me a fill.

It did gap up nicely, but only to 2.844. A lot of things were going through my mind.

-I just risked $6K and only take $300ish profit at 2.844? That doesn't make sense.

-Based on my analysis, we're still on a downtrend, so I'm sure this wants to head down and test the bottom (or higher high) at some point.

-Should I set a stop at about break-even?

-Should I just get out?

At the end, I just decided to leave it alone. Instead of going to 2.855, Nat gas started heading down and today closed at 2.710 LOD about $1350 off today's high, so I'm -$1K again.

I think we're at a critical level. It looks like a bull flag on daily, but it also can dive from here pretty hard. I was hoping for a strong close, but we closed very weak. NG has been very volatile, so buying an put doesn't seem like a good idea. I don't sell a call at least until I have two contracts.

Anyway, I move my target up a bit because I figured if it breaks 2.844, it'll probably go 2.9 or so. If you have any advice on being patient, please let me know.

NG roll over

I rolled over my NG holding:

Sold 1 Feb NG at 2.563

Bought 1 Mar NG at 2.60

(-$3.5*2 + -$3.5 = -$10.5 futures execution and options assignment commissions.)

The Feb sell will offset the 3 put. The spread at the time of execution was 0.037, so my new break-even based on Mar contract is 2.815 (after commissions).

I'll put an order to sell a call and a put option soon. To sell a call, I need a bit of bounce and to sell a put, I need a further drop. Until then, looks like I'm going to be in the wait mode again.

I'm wondering if history repeats itself between Feb and June like boogster says.

NG report

The following is NG report:

The U.S. Energy Information Administration report showed total domestic gas inventories fell last week by 192 billion cubic feet to 3.098 trillion cubic feet. Traders and analysts polled by Reuters had expected a 168-bcf decline.

So, the inventory dropped more than expected, a normal guy would think NG should rally. 24bcf is a lot! But it's not, actually we're well of its high. Outlook still looks warmer than normal. Still well above 5 year average inventory. Heck, on the weekend, I saw lots of birds migrating to north in the middle of January!

Anyway, I stopped rationalize markets because it just doesn't work for me. What works is a plan and an ability to execute the plan.

Plan on NG

Today, Feb NG options expire. I have two puts: 3 and 2.4. The 2.4 puts will be likely to expire worthless. The 3 puts is well in the money. My break-even is about 2.775. I've been scratching my head quite a bit because I expected NG to stay below 2.4 so that my break-even would be 2.58.

Instead, I'm close to be break-even. Actually overnight, it went as high as 2.8. The dilemma is this.

Say, I want to get out at break even now, so I'd place an order to exit my 3 puts. As you know, if options go well in the money, the spread of bid and ask get widen. The spread of futures' options are a lot wider than stocks'. By the time I get filled, I'll be a victim of market maker, who tend to do this on purpose on expiration day even more.

So, the next option is to short Feb futures outright. Sounds great. The twist is there's nat gas inventory report coming out today. For whatever reason, if it shoots above 3, I need to exit the short because at that time, 3 puts will get worthless and I don't want to hold on to a short on news day. What if it goes above and below 3 back and forth. I should keep buying and selling like day traders, which can't be quite costly. This is quite unlikely and as of this writing, because NG is -0.040, so this option is long gone.

I thought about buying puts too to protect from the downside move, but believe it or not, even if today is options expiration day, there's still a lot of premium on so far out-of-money options. Sure, NG became volatile, but I'm not paying for $500 to offset 0.050 out of money.

What do I do? When things go against you a lot and come back, you're so attempted to get out at break-even. Yes, the murphy's law says, if I get out at break-even, as soon as you get out, it'll go in your favor. If you don't get out, it'll worse than before. Nonetheless, I'm not going to do anything until news come out.

If it's above 2.775, I might offset by selling futures and place an order to sell puts to fresh start at a lower break-even. If it's below, I'll hold and I'll roll over to March contract. I'll place an order to sell calls at the same time. Strike and price need to be determined.

NG bounced a lot in the last 3 days, so it may be due for a pull back (if not another leg down). Something interesting is Feb options has twice more puts than calls. Wouldn't it be a good money to get a lot of inflated puts expire worthless from institutions' standpoint?

Short squeeze

A classic short squeeze. We had lots of initiated (new) short last week, which increased the open interest on Feb contract on Nat gas. As we're approaching to the contract expiration this week, people tightened their stops.

Overnight on Sunday the contract was down a lot not to mention gapped down scaring people away, which is when institutions start taking profits, which in turn makes it drift higher and higher. It then triggered buy stops (exit shorts), which makes NG shoots to +0.25ish in a matter of mins. (Isn't it always very easy to explain after the the fact??)

I say this is a short squeeze because this makes the open interest go down, but also it came off the high shortly after quickly dying every min. Another thing to look at is the spread between contracts.

What's more important is that longer term contracts have gained than near term ones. News shows that the biggest nat gas driller decided to cut down production immediately and the last week's baker hughes report reads the rig count went down again.

What do producers do when price go down and they don't make money? They cut supplies. Supply goes down and price goes higher. And that's what I'm here for. Granted, it'll take a very long time and I don't think we'll see $10+ gas, but certainly higher than where we're now. Markets are very very efficient about what's likely happen in the future.

Today, NG shot up with the continuation of the yesterday's move, but quickly faded. It'll keep going down to see if there's any buyer. Hopefully a higher low or a double bottom. I can't do anything until the Feb Options expire on Thursday. I hope we have a thrust move to upside, so that I can utilize more options. I'll talk more about this later.

Sold Feb NG 2.4 Put

While I was writing my previous blog, NG came down, so I sold Feb 2.4 put for 0.105 (or $1050 - $3 commissions). I was initially thinking about selling 2.5 put, but price was dropping too fast, so I waited. A bit better, but I don't see any sign of a bottom yet. I don't want to be out of bullets.

NG report came out short. It's not only well below average draw for this time of the year, but also shorter than expectation too. With 9 daily red bars, what can I say! In the mean time, I'm trying to sell 2.4 put with 0.1 or above to scale in or offset. I'm attempted to just buy futures outright, but I probably shouldn't do that.

A dead cat bounce

The last time I saw a green ticker on NG was about 8 days ago. It had 7 red candles (daily) in a row shaving close to 20% of its value. Well, that's usually what happens when one tries to catch a falling knife.

I placed an order to sell Feb 2.5 put for 0.153. Yesterday NG dropped to 2.43 and the puts was about 0.13-0.14. Of course, what happened was that it got very close and bounced since. Today, NG reached as high as 2.54, which would have been a nice $1000 to lower my break-even.

I don't see today's uptick as a real bounce. It's a mild profit taking. It might go up a bit more, but usually it'll have another move down, at which it can form a lower low, higher low or double-bottom. The latter twos are the best scenarios for me, but even with those, NG will likely stay at this level very very long time.

I'm hoping it bounces about 0.1 to 0.2 so that I can sell calls to lower my break-even. Otherwise, I'll need a lot of patience.

A chosen one

Have you felt that you have so many things to choose from, but it happens so that you chose something that doesn't work out? I was looking at Corn-Wheat spread, Gold-Platinum spread and Nat gas. It looks like Corn-Wheat would have yielded about $1200 and Gold-Platinum would have yielded about $2600 whereas I'm about -$2200 with Nat gas. I guess we'd all become a good trader in hindsight anyway.

Here's my plan. My break-even on NG is 2.875. NG is currently being traded at 2.655. If it closes around this price at options expiration, I'll roll over and I'll place an order for at or slighly out of the money options for a covered call. To do this I need a bit of bounce. If NG keeps going down like the last 5 days, this can't work.

For example, my roll-over price is at 2.7 and my break even is 2.9 (after the spread between Feb and Mar NG factored in), I'd like to sell 2.8 Calls for 0.2 ($2000), to ultimately make about $1000. Once I have 2.8 calls sold, I'm in a sold position because if it drops again, my break is lowered (2.9-0.2 = 2.7).

On the other hand, if it doesn't give me a chance to sell the call, I'm looking to sell another puts at 2.5 to cost-average. In this case, I can try to sell 2.7 calls for $2000 or so.

There's been lots of talks on NG: hedge fund getting hit, the shortest winter, abundance, new technology to drill etc... I'm simply trying to trade my plan with lots of patience.

I hope for a bounce since the 5-day in a row down day has not been fun.

NG trade update

Looks like NG is being beaten down, making a fresh low by every moment. Two days ago, it was rallying, so I was thinking about getting out with $500+ profits, but I figured that's not why I got in, in the first place, so decided to hold.

With about a little over 2 weeks left, I can't do anything other than just sitting on my hands. Nat gas report comes out every Thursday, but being how warm it has been, I only expect a further down. Technically, volume spikes up when there's a peak, so I thought that's what I saw, but I guess not. It's usually pretty hard when you try to go against the trend.

My break-even is 2.875, so I think I'm in a good position still. I just need to chill and let it play out.

TOS option analysis tool

I don't know if you can see the above image well or not, but the above is a screenshot of ThinkOrSwim option analysis tool. It basically shows how my option is designed to work and where I'm at.

The red line shows the P/L at the expiration. I sold NG Feb 3 put for 0.125 so my break-even is about 2.875 and my max profit is +$1250 taking all the premium. The white line shows the relationship between options and my P/L TODAY. For example, if the options drops to 2.95ish, I'm about b/e. If it drops to 2.875 today (I hope not), then I'm -$522. If the market doesn't move until the expiration, the while line should shift to right everyday.

Now I put an order to buy back this option in case it just shoots up since the profit is limited. What's nice about TOS is it shows what the underlying price will be in regards to options price. In other words, if I place to buy back the 3 put at 0.5, this graph will show that the price of the underlying futures has to go up to 3.1 or something like that.

You can do this in your head, but it's certainly a very nice tool.

2011 Totals

2011 was a pretty quite year in that I didn't start trading until Sept. My portfolio is $25K and I finished with +$1323.03. It's also +5.3%, but I think % is a bit misleading because if, for example, a guy with 1K portfolio comes out, trade forex and makes $1000. Sure, he made 100%, but is it the same as $100K portfolio doubled? I don't think so.

I still have a hard time pulling the trigger. When I didn't know anything, I had no problem getting in, but now I'm very very cautious ended up missing a lot. I still have old bad habits of watching markets tick-by-tick once I get in, which probably doesn't help at all. I hope to make an improvement on this.

I also realized that I didn't do any update on 2009/2010 P/L. At the beginning of 2009, I was down a lot, but made all back + some before I withdrew all to build a house.

Sold Feb NG 3.5 Put

Today I entered Feb NG 3.5 put for 0.125 or $1250.

This winter has been nothing like previous ones. I don't think winter has never been this warm, which probably makes a lot of people think why betting a long on NG? Pricewise, it's already good. If weather starts turning even with a solid cold week, things can turn around quickly. NG is well below the cost of production, so I'm willing to sit on it for a while. $4 or $5 was about half and half, but I like it here.