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

May 23, 2018 

  • Although we had seen futures still stuck between 2.70 and the high 2.80s there had been a noticeable uptick in implied vol levels. N-Z18 was up 1-1.5 vols, the back end of 2018 has performed better than the front as Q1 2019 has also remained strong. On Monday vols took it on the chin for the first time in the past couple of weeks - NV showed vol weakness on very light volume (mostly live put selling) as the market again failed at the top of the recent futures range. Vol gave back a large chunk of the 2 week gains. The live put selling proved prescient as Tuesday saw a .10 rally in the spot month and a modest recovery in vol that mostly faded by days end. For the most part it has actually been put and put spread buying in Q1 2019 that have kept those vols firm, calls have not been bought in the same frequency as of late. Given most of that feels directional it will be interesting to see how vol holds up if we ever washed out and paper was sitting on 50-100,000 puts and put spreads that were profitable.
  • As I mentioned in the last commentary F vol proved to be a good vol buy vs. V or X, but H performed best according to my own numbers. I think Q1 vol will hold up well overall but at these skews I’m not overly excited about owning outright puts. The specter of huge profit taking on a drop has me slightly leery. In saying that I do think the puts will hold up fine on a rally where you might see some rolling up and continued strength in that area of Q1. I just still think the options with the most potential to explode remain Q1 calls and at current skews I consider F calls to be relatively cheap for Q1. Even G calls don’t seem expensive to me, though paper seems to focus on buying H calls when they want some upside, a surprise given the action last year in G/H.
  • I don’t think the vol levels of FH will pull back significantly unless we drift lower and sit. Given that I think Z vol looks like great value relative to where V is and FH. I like something in the 310-330 range (hedged). If I spread it off I’d sell something like the V 310/360 c/s hedged or the G 2.75/2.25 p/s hedged against.
  • Looking at the premium H $4.50 call has to J $3.00 call I think that J call is fairly cheap. I’ve harped on it for a while but I still like the J 2.25/3.00 fence (long call, short put hedged) at these levels. Given the awful performance of JV18 puts on any drop I’m not sure the 2019 summer puts will perform as well as is implied by current skew levels on a drop.
  • I also have (optimistic) expectations that we are entering a period of more movement/volatility in the underlying. Given that I like owning the Q straddle a vol under the V straddle. I think you can get some good scalps on spread movement and the next month may see us break out of this range.
  • I also like owning the NV 290/270 1 by 2 p/s live - it has a modest short delta, costs .034ish as of this morning, and I think on a dip we’ll see another bought of live put selling. I think the perceived floor in the market is in the $2.70 range so I like that as my short strike in the structure.

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

May 23, 2018 

  • Although we had seen futures still stuck between 2.70 and the high 2.80s there had been a noticeable uptick in implied vol levels. N-Z18 was up 1-1.5 vols, the back end of 2018 has performed better than the front as Q1 2019 has also remained strong. On Monday vols took it on the chin for the first time in the past couple of weeks - NV showed vol weakness on very light volume (mostly live put selling) as the market again failed at the top of the recent futures range. Vol gave back a large chunk of the 2 week gains. The live put selling proved prescient as Tuesday saw a .10 rally in the spot month and a modest recovery in vol that mostly faded by days end. For the most part it has actually been put and put spread buying in Q1 2019 that have kept those vols firm, calls have not been bought in the same frequency as of late. Given most of that feels directional it will be interesting to see how vol holds up if we ever washed out and paper was sitting on 50-100,000 puts and put spreads that were profitable.
  • As I mentioned in the last commentary F vol proved to be a good vol buy vs. V or X, but H performed best according to my own numbers. I think Q1 vol will hold up well overall but at these skews I’m not overly excited about owning outright puts. The specter of huge profit taking on a drop has me slightly leery. In saying that I do think the puts will hold up fine on a rally where you might see some rolling up and continued strength in that area of Q1. I just still think the options with the most potential to explode remain Q1 calls and at current skews I consider F calls to be relatively cheap for Q1. Even G calls don’t seem expensive to me, though paper seems to focus on buying H calls when they want some upside, a surprise given the action last year in G/H.
  • I don’t think the vol levels of FH will pull back significantly unless we drift lower and sit. Given that I think Z vol looks like great value relative to where V is and FH. I like something in the 310-330 range (hedged). If I spread it off I’d sell something like the V 310/360 c/s hedged or the G 2.75/2.25 p/s hedged against.
  • Looking at the premium H $4.50 call has to J $3.00 call I think that J call is fairly cheap. I’ve harped on it for a while but I still like the J 2.25/3.00 fence (long call, short put hedged) at these levels. Given the awful performance of JV18 puts on any drop I’m not sure the 2019 summer puts will perform as well as is implied by current skew levels on a drop.
  • I also have (optimistic) expectations that we are entering a period of more movement/volatility in the underlying. Given that I like owning the Q straddle a vol under the V straddle. I think you can get some good scalps on spread movement and the next month may see us break out of this range.
  • I also like owning the NV 290/270 1 by 2 p/s live - it has a modest short delta, costs .034ish as of this morning, and I think on a dip we’ll see another bought of live put selling. I think the perceived floor in the market is in the $2.70 range so I like that as my short strike in the structure.

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

May 23, 2018 

  • Although we had seen futures still stuck between 2.70 and the high 2.80s there had been a noticeable uptick in implied vol levels. N-Z18 was up 1-1.5 vols, the back end of 2018 has performed better than the front as Q1 2019 has also remained strong. On Monday vols took it on the chin for the first time in the past couple of weeks - NV showed vol weakness on very light volume (mostly live put selling) as the market again failed at the top of the recent futures range. Vol gave back a large chunk of the 2 week gains. The live put selling proved prescient as Tuesday saw a .10 rally in the spot month and a modest recovery in vol that mostly faded by days end. For the most part it has actually been put and put spread buying in Q1 2019 that have kept those vols firm, calls have not been bought in the same frequency as of late. Given most of that feels directional it will be interesting to see how vol holds up if we ever washed out and paper was sitting on 50-100,000 puts and put spreads that were profitable.
  • As I mentioned in the last commentary F vol proved to be a good vol buy vs. V or X, but H performed best according to my own numbers. I think Q1 vol will hold up well overall but at these skews I’m not overly excited about owning outright puts. The specter of huge profit taking on a drop has me slightly leery. In saying that I do think the puts will hold up fine on a rally where you might see some rolling up and continued strength in that area of Q1. I just still think the options with the most potential to explode remain Q1 calls and at current skews I consider F calls to be relatively cheap for Q1. Even G calls don’t seem expensive to me, though paper seems to focus on buying H calls when they want some upside, a surprise given the action last year in G/H.
  • I don’t think the vol levels of FH will pull back significantly unless we drift lower and sit. Given that I think Z vol looks like great value relative to where V is and FH. I like something in the 310-330 range (hedged). If I spread it off I’d sell something like the V 310/360 c/s hedged or the G 2.75/2.25 p/s hedged against.
  • Looking at the premium H $4.50 call has to J $3.00 call I think that J call is fairly cheap. I’ve harped on it for a while but I still like the J 2.25/3.00 fence (long call, short put hedged) at these levels. Given the awful performance of JV18 puts on any drop I’m not sure the 2019 summer puts will perform as well as is implied by current skew levels on a drop.
  • I also have (optimistic) expectations that we are entering a period of more movement/volatility in the underlying. Given that I like owning the Q straddle a vol under the V straddle. I think you can get some good scalps on spread movement and the next month may see us break out of this range.
  • I also like owning the NV 290/270 1 by 2 p/s live - it has a modest short delta, costs .034ish as of this morning, and I think on a dip we’ll see another bought of live put selling. I think the perceived floor in the market is in the $2.70 range so I like that as my short strike in the structure.

May 23, 2018 

Although we had seen futures still stuck between 2.70 and the high 2.80s there had been a noticeable uptick in implied vol levels...

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