Since putting in a low on 8/8 at $3.15 October natural gas futures have advanced 11% lifting this contract to the down sloping trend line(blue line) that has served as resistance since mid-May. It was a positive development in recent sessions to trade above both the 8 and 18 day MAs. Above the trend line my next upside objective is the 50 day MA (green line) which comes in around the same level as the gap that was formed on 7/26. Outside of technical reasons for the appreciation that likely includes short covering let’s address some fundamentals. Hotter temperatures in the Midwest and Plain states are raising demand expectations. Warmer temperatures in the coming weeks means more homes and businesses use air conditioning powered by gas-fired electricity…raising demand. (BULLISH). A pair of storms that had the potential to develop into hurricanes weakened to tropical depressions (BEARISH). Natural gas traders will continue to pay close attention to tropical storm activity in the gulf as it is hurricane season.
Where from here?
I am looking for higher trade yet and have advised bullish traders already positioned to stay the course. Upside objectives in this contract is as follows, first the gap from 7/26 at $3.57, followed by the 50 day MA at $3.62, and finally the 38.2% Fibonacci retracement level at $3.72. At this juncture I’m suggesting two bullish strategies:
Back ratio spreads in both October and November, selling (1) at the money call and buying multiple (3 or 4) out of the money calls. Looking to spend under $1,000 in premium for the entire package.
Also I like the idea of long futures with some sort of options leg for protection. Assuming you are trading October futures you could sell a $3.50 or $3.60 call or buy a $3.50 or $3.40 put. The idea is to make more money on the futures leg than you lose on the options leg. My suggestion is if you offset the futures at a profit or loss lift the options at the same time so the hedge does not turn into its own trade.
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As always, I’m here to discuss specifics and give guidance. Shoot me an email…Give me a call… you can reach me at: mbradbard@rcmam.com or 954-929-9997
Risk Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.
