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

September 7, 2018

In the past few weeks the futures have chopped around without really breaking out from our longer term range. Straddle premiums in Oct-Dec have eroded along the way but the dynamic in Q1 2019 has been different. For at least a month vol has steadily climbed in FH9; the straddle premium levels are virtually identical to where they were a month ago. With fall and winter on the way I don’t expect that pattern to change much, F is logically the most vulnerable vol as fall weather becomes clearer. The other feature of FH9 that stands out is the put skew in F is running close to flat while G and especially H have fairly steep, typical negative put skews. This is likely a function of both the lower premiums in F puts as well as the flow that left many players short F puts against long G and H puts. JV9 has not had anything extreme change its parameters, though the sharp positive put skew has eased up modestly.

Some relationships that look interesting to me:

  • Given the put skew difference in F vs. H I like the idea of being short the F puts and long the H. There are many ways to play this - F 250/400 fence vs H 250/400 fence, F 285/250 p/s vs. H 285/250 p/s are just 2 examples. I believe if we rally H vol will outperform F and if we come off there will be extensive profit taking in F puts to put that skew difference back in line
  • I would scale into the J9/N9/V9 futures butterfly. It's approximately .03-.035 now, I like owning the N9 and being short the wing portions. I would start small and add if it comes under .02 or slowly over time as we approach winter and more is clear regarding end of season balances.
  • In JV9 even though the puts have come in a little bit, I still like owning the 3.00 or 3.25 calls (hedged) vs. the 2.25 puts. I'm not convinced the surface won't eventually resemble the shape of summer 2018 and that was negative puts and additional pressure on puts when we dipped.
  • While it's close to 8 ticks I would sell J/K 3.25 c/s selling the J and collecting the ticks. I think that price is likely out of range for J though I would do it in modest size only.
  • Again trying to take advantage of the relative strength of F put skew I would put on F 2.50/4.00 fence hedged - long call short put. I think the trade will work regardless of which direction we move though I think it does best on a drift lower.
  • I also think Z vol is trading at too much of a premium to X. To take advantage of that I would either do X 2.50/3.50 strangle vs Z 2.50/3.50 strangle (long X, short Z) or do X/Z 3.25 c/s hedged (long X, short Z).

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

September 7, 2018

In the past few weeks the futures have chopped around without really breaking out from our longer term range. Straddle premiums in Oct-Dec have eroded along the way but the dynamic in Q1 2019 has been different. For at least a month vol has steadily climbed in FH9; the straddle premium levels are virtually identical to where they were a month ago. With fall and winter on the way I don’t expect that pattern to change much, F is logically the most vulnerable vol as fall weather becomes clearer. The other feature of FH9 that stands out is the put skew in F is running close to flat while G and especially H have fairly steep, typical negative put skews. This is likely a function of both the lower premiums in F puts as well as the flow that left many players short F puts against long G and H puts. JV9 has not had anything extreme change its parameters, though the sharp positive put skew has eased up modestly.

Some relationships that look interesting to me:

  • Given the put skew difference in F vs. H I like the idea of being short the F puts and long the H. There are many ways to play this - F 250/400 fence vs H 250/400 fence, F 285/250 p/s vs. H 285/250 p/s are just 2 examples. I believe if we rally H vol will outperform F and if we come off there will be extensive profit taking in F puts to put that skew difference back in line
  • I would scale into the J9/N9/V9 futures butterfly. It's approximately .03-.035 now, I like owning the N9 and being short the wing portions. I would start small and add if it comes under .02 or slowly over time as we approach winter and more is clear regarding end of season balances.
  • In JV9 even though the puts have come in a little bit, I still like owning the 3.00 or 3.25 calls (hedged) vs. the 2.25 puts. I'm not convinced the surface won't eventually resemble the shape of summer 2018 and that was negative puts and additional pressure on puts when we dipped.
  • While it's close to 8 ticks I would sell J/K 3.25 c/s selling the J and collecting the ticks. I think that price is likely out of range for J though I would do it in modest size only.
  • Again trying to take advantage of the relative strength of F put skew I would put on F 2.50/4.00 fence hedged - long call short put. I think the trade will work regardless of which direction we move though I think it does best on a drift lower.
  • I also think Z vol is trading at too much of a premium to X. To take advantage of that I would either do X 2.50/3.50 strangle vs Z 2.50/3.50 strangle (long X, short Z) or do X/Z 3.25 c/s hedged (long X, short Z).

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

September 7, 2018

In the past few weeks the futures have chopped around without really breaking out from our longer term range. Straddle premiums in Oct-Dec have eroded along the way but the dynamic in Q1 2019 has been different. For at least a month vol has steadily climbed in FH9; the straddle premium levels are virtually identical to where they were a month ago. With fall and winter on the way I don’t expect that pattern to change much, F is logically the most vulnerable vol as fall weather becomes clearer. The other feature of FH9 that stands out is the put skew in F is running close to flat while G and especially H have fairly steep, typical negative put skews. This is likely a function of both the lower premiums in F puts as well as the flow that left many players short F puts against long G and H puts. JV9 has not had anything extreme change its parameters, though the sharp positive put skew has eased up modestly.

Some relationships that look interesting to me:

  • Given the put skew difference in F vs. H I like the idea of being short the F puts and long the H. There are many ways to play this - F 250/400 fence vs H 250/400 fence, F 285/250 p/s vs. H 285/250 p/s are just 2 examples. I believe if we rally H vol will outperform F and if we come off there will be extensive profit taking in F puts to put that skew difference back in line
  • I would scale into the J9/N9/V9 futures butterfly. It's approximately .03-.035 now, I like owning the N9 and being short the wing portions. I would start small and add if it comes under .02 or slowly over time as we approach winter and more is clear regarding end of season balances.
  • In JV9 even though the puts have come in a little bit, I still like owning the 3.00 or 3.25 calls (hedged) vs. the 2.25 puts. I'm not convinced the surface won't eventually resemble the shape of summer 2018 and that was negative puts and additional pressure on puts when we dipped.
  • While it's close to 8 ticks I would sell J/K 3.25 c/s selling the J and collecting the ticks. I think that price is likely out of range for J though I would do it in modest size only.
  • Again trying to take advantage of the relative strength of F put skew I would put on F 2.50/4.00 fence hedged - long call short put. I think the trade will work regardless of which direction we move though I think it does best on a drift lower.
  • I also think Z vol is trading at too much of a premium to X. To take advantage of that I would either do X 2.50/3.50 strangle vs Z 2.50/3.50 strangle (long X, short Z) or do X/Z 3.25 c/s hedged (long X, short Z).

September 7, 2018

In the past few weeks the futures have chopped around without really breaking out from our longer term range. Straddle premiums in Oct-Dec have eroded along the way but...

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