By Beacon Energy's Stephen Kessler

Enjoy this week's insights into the North American natural gas market sent to you compliments of ICE. With over 25 years' experience in derivatives, Beacon Energy's Stephen Kessler shares analysis on market movements as well as his own trade insights.

Stephen Kessler
Natural Gas Broker, Beacon Energy Group

Kessler has been brokering at Beacon Energy Group since 2010, putting out commentary on natural gas market movements as well as his own trade insights. Kessler has more than 25 years’ experience within the derivatives markets, and prior to his role at Beacon, he was trading natural gas and soft commodity options both independently as a market maker and with a hedge fund.

If you’re interested in a more in depth look or wish to provide feedback, connect with Stephen Kessler.

Connect on LinkedIn

June 20, 2018 

  • We finally breached $3.00 in N but the gains were short lived. Monday and Tuesday we immediately washed back out to the low $2.90s. Vol has been fairly steady and stable as a mix of outright buying has been tempered with some straddle selling and 3 ways. Q1 vol continues to hold its premium, I think that will continue and we may not see premiums expand but vol may continue to creep out so the straddles hold their premiums.
  • G and H vol in particular - especially puts - have continued to see buying. I'm wary of joining that side of the trade as a move down to $2.75 can prove to be disappointing for implied vol and may also trigger the first wave of profit taking in puts or put spreads. I will add though that a true collapse down to $2.25 or below could see vol strength so the true teeny puts in Q1 do not seem egregious to me.
  • I also like the V/X/Z 2.75 put fly live as a good value play. Owning the 2 X and being short the wings. As a vol fly I think it's attractive, but I also think it performs through spreads on the way down in that I think a selloff would likely bring a widening of X/Z futures spread relative to V/X. As of this morning it costs in the area of .012 for the middle.
  • I still think J9 calls in particular are cheap compared to corresponding premiums in H. I wouldn't spread H vs J this early but using H as a guide I'd be comfortable owning J 300-325 calls xed up on their own at these levels (or against puts in JV9).
  • I also still like holding the NV 290/270 1 by 2 p/s still - it has picked up a few short deltas and gained in value, I would keep the position on and the small hedge I mentioned in the last commentary. I think that 2.70 put strip will see pressure if we dip into the mid $2.80s in N.
  • On the call side the NV 300/320 1 by 2 is still around .02, the level I mentioned as a price I would own it in the last commentary. Though the underlying looks terrible given its quick slide from $3 I would still hold the position, it isn't huge delta exposure and I can't rule out a bounce if we get below $2.90 in N.
  • Given the strength in Q1 puts I would still look to put a 1 by 2 on in FH - and as a hedge to the downside I'd buy some Z 225 puts.
  • I also like U vol still as it sits under V. I mentioned the U/V/X vol fly and I still like it - short the V owning the U and X. U remains the lowest implied vol in the QH strip.
  • Lastly I would begin to look at fences in F. The 275/375 fence under 2 vols of skew to the call is starting to look like attractive levels to me, I may scale slowly into that trade (hedged). I do think as we get closer to end of summer the Q1 calls will garner more bid interest than they are now and there is still uncertainty over end of season balances, thus uncertainty over winter price action.
  • From the short vol side I would keep an eye on Q 275/285/305/315 condor, it's just under .05 - for .05 I would be a small seller of the condor risking .05 to make a nickel with a settle between 280 and 310 making money - something that feels like greater than a 50% likelihood at this point.

Stephen Kessler
Natural Gas Broker, Beacon Energy Group

Kessler has been brokering at Beacon Energy Group since 2010, putting out commentary on natural gas market movements as well as his own trade insights. Kessler has more than 25 years’ experience within the derivatives markets, and prior to his role at Beacon, he was trading natural gas and soft commodity options both independently as a market maker and with a hedge fund.

If you’re interested in a more in depth look or wish to provide feedback, connect with Stephen Kessler.

Connect on LinkedIn

June 20, 2018 

  • We finally breached $3.00 in N but the gains were short lived. Monday and Tuesday we immediately washed back out to the low $2.90s. Vol has been fairly steady and stable as a mix of outright buying has been tempered with some straddle selling and 3 ways. Q1 vol continues to hold its premium, I think that will continue and we may not see premiums expand but vol may continue to creep out so the straddles hold their premiums.
  • G and H vol in particular - especially puts - have continued to see buying. I’m wary of joining that side of the trade as a move down to $2.75 can prove to be disappointing for implied vol and may also trigger the first wave of profit taking in puts or put spreads. I will add though that a true collapse down to $2.25 or below could see vol strength so the true teeny puts in Q1 do not seem egregious to me.
  • I also like the V/X/Z 2.75 put fly live as a good value play. Owning the 2 X and being short the wings. As a vol fly I think it’s attractive, but I also think it performs through spreads on the way down in that I think a selloff would likely bring a widening of X/Z futures spread relative to V/X. As of this morning it costs in the area of .012 for the middle.
  • I still think J9 calls in particular are cheap compared to corresponding premiums in H. I wouldn’t spread H vs J this early but using H as a guide I’d be comfortable owning J 300-325 calls xed up on their own at these levels (or against puts in JV9).
  • I also still like holding the NV 290/270 1 by 2 p/s still - it has picked up a few short deltas and gained in value, I would keep the position on and the small hedge I mentioned in the last commentary. I think that 2.70 put strip will see pressure if we dip into the mid $2.80s in N.
  • On the call side the NV 300/320 1 by 2 is still around .02, the level I mentioned as a price I would own it in the last commentary. Though the underlying looks terrible given its quick slide from $3 I would still hold the position, it isn’t huge delta exposure and I can’t rule out a bounce if we get below $2.90 in N.
  • Given the strength in Q1 puts I would still look to put a 1 by 2 on in FH - and as a hedge to the downside I’d buy some Z 225 puts.
  • I also like U vol still as it sits under V. I mentioned the U/V/X vol fly and I still like it - short the V owning the U and X. U remains the lowest implied vol in the QH strip.
  • Lastly I would begin to look at fences in F. The 275/375 fence under 2 vols of skew to the call is starting to look like attractive levels to me, I may scale slowly into that trade (hedged). I do think as we get closer to end of summer the Q1 calls will garner more bid interest than they are now and there is still uncertainty over end of season balances, thus uncertainty over winter price action.
  • From the short vol side I would keep an eye on Q 275/285/305/315 condor, it’s just under .05 - for .05 I would be a small seller of the condor risking .05 to make a nickel with a settle between 280 and 310 making money - something that feels like greater than a 50% likelihood at this point.

Stephen Kessler
Natural Gas Broker, Beacon Energy Group

Kessler has been brokering at Beacon Energy Group since 2010, putting out commentary on natural gas market movements as well as his own trade insights. Kessler has more than 25 years’ experience within the derivatives markets, and prior to his role at Beacon, he was trading natural gas and soft commodity options both independently as a market maker and with a hedge fund.

If you’re interested in a more in depth look or wish to provide feedback, connect with Stephen Kessler.

Connect on LinkedIn

June 20, 2018 

  • We finally breached $3.00 in N but the gains were short lived. Monday and Tuesday we immediately washed back out to the low $2.90s. Vol has been fairly steady and stable as a mix of outright buying has been tempered with some straddle selling and 3 ways. Q1 vol continues to hold its premium, I think that will continue and we may not see premiums expand but vol may continue to creep out so the straddles hold their premiums.
  • G and H vol in particular - especially puts - have continued to see buying. I’m wary of joining that side of the trade as a move down to $2.75 can prove to be disappointing for implied vol and may also trigger the first wave of profit taking in puts or put spreads. I will add though that a true collapse down to $2.25 or below could see vol strength so the true teeny puts in Q1 do not seem egregious to me.
  • I also like the V/X/Z 2.75 put fly live as a good value play. Owning the 2 X and being short the wings. As a vol fly I think it’s attractive, but I also think it performs through spreads on the way down in that I think a selloff would likely bring a widening of X/Z futures spread relative to V/X. As of this morning it costs in the area of .012 for the middle.
  • I still think J9 calls in particular are cheap compared to corresponding premiums in H. I wouldn’t spread H vs J this early but using H as a guide I’d be comfortable owning J 300-325 calls xed up on their own at these levels (or against puts in JV9).
  • I also still like holding the NV 290/270 1 by 2 p/s still - it has picked up a few short deltas and gained in value, I would keep the position on and the small hedge I mentioned in the last commentary. I think that 2.70 put strip will see pressure if we dip into the mid $2.80s in N.
  • On the call side the NV 300/320 1 by 2 is still around .02, the level I mentioned as a price I would own it in the last commentary. Though the underlying looks terrible given its quick slide from $3 I would still hold the position, it isn’t huge delta exposure and I can’t rule out a bounce if we get below $2.90 in N.
  • Given the strength in Q1 puts I would still look to put a 1 by 2 on in FH - and as a hedge to the downside I’d buy some Z 225 puts.
  • I also like U vol still as it sits under V. I mentioned the U/V/X vol fly and I still like it - short the V owning the U and X. U remains the lowest implied vol in the QH strip.
  • Lastly I would begin to look at fences in F. The 275/375 fence under 2 vols of skew to the call is starting to look like attractive levels to me, I may scale slowly into that trade (hedged). I do think as we get closer to end of summer the Q1 calls will garner more bid interest than they are now and there is still uncertainty over end of season balances, thus uncertainty over winter price action.
  • From the short vol side I would keep an eye on Q 275/285/305/315 condor, it’s just under .05 - for .05 I would be a small seller of the condor risking .05 to make a nickel with a settle between 280 and 310 making money - something that feels like greater than a 50% likelihood at this point.

June 20, 2018 

We finally breached $3.00 in N but the gains were short lived. Monday and Tuesday we immediately washed back out to the low $2.90s...

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