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Trading: Primarily Energy but also a little Equities, Fixed Income, Metals, U308 and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,059 since Dec 2013
Thanks Given: 4,410
Thanks Received: 10,226
Yes ~ higher the demand in Feb the greater the chance we run out in March. But it's still a binary event. We either run out or we don't. If we don't March prices relative to April, if we do March prices where?
Looking at some EIA numbers, raw numbers UNadjusted for weather, you can probably see why Feb trades at a premium
Feb 2011 consumption 2452 = 87.6/day
Mar 2011 consumption 2230 = 71.9/day (-17.9% vs Feb)
Feb 2012 consumption 2502 = 86.2/day
Mar 2012 consumption 2129 = 68.7/day (-20.3% vs Feb)
Feb 2013 consumption 2559 = 91.4/day
Mar 2013 consumption 2512 = 81.0/day (-12.3% vs Feb)
Just FYI, Apr numbers are all <2000 or <66/day. May and June are even lower.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals, U308 and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,059 since Dec 2013
Thanks Given: 4,410
Thanks Received: 10,226
Something else worth considering is that at extreme times like this pipelines get full and demand>supply at certain locations, no matter what the storage situataion. For example, some of the extreme physical prices today for delivery tomorrow where
So whose idea was it to have a Superbowl in an outdoor stadium in the North????
And compared with less constrained prices...
MidWest
Chicago Citygate $8.90
Gulf (the cheap gas!)
Henry $4.91
HSC (Houston) $4.95
West (the otherside of the Rockies and at times, a completely different market)
PG&E Citygate (San Fran) $4.86
Socal Border $4.86
Socal Citygate (LA) $4.91
If someone is new to Nat Gas options, they need to be extra careful in March. As you've noted, the Mar/Apr futures spread can be treacherous, and unlike say, Grains, a Nat Gas options trader planning to hang in there until options expiration is also essentially hanging in until futures expiration. He's going to be subject to any craziness that may occur in the last couple of days of options and futures trading.
Example:
Mar Nat Gas options expire Feb 25, futures expire Feb 26.
Mar Grain options expire Feb 21, futures expire Mar 14. A grain option trader is OUT before first notice day, before the delivery month, before the 'games' that can happen depending on delivery economics, and he's typically OUT before the most illiquid and volatile spread trade occurs in Mar/May or Mar/any-other-month.
Today in NG Mar options was an example of a day where if you were short calls, you definitely lost money, and if you were short puts at strikes < $3.70, you lost a little money in those too.
Vol curve comparison Wed Jan 22 v Tue Jan 21. Red vertical marker is the Jan 21 close.
If you are asking if I reduce excess when <14 DTE the answer is most of the time. But it depends how far OTM the strike is and how volatile are futures.
Buying back before expiration works very well. Most times you can double the ROI if timed and priced correctly. You have to sell at a high enough premium so that the costs to trade out of the position don't take all of the profit.
As to whether to do ES at 56 or 86 DTE? With more research I am finding it doesn't matter as far as ROI. The price decay of an equally priced but lower strike further out in time is the same as the closer in DTE option for ES. There is more volume on the 56 DTE than higher DTEs so easier to get trades done.
Comparing the same strike 56 or 86 DTE the ROI will be better on the 86 DTE because of the higher premium.