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

April 5, 2018 

  • The daily ranges, volumes and vol have suffered greatly these past couple of weeks. Break-evens for the fronts are now well under .04, a tough level to keep a short vol/gamma position. The flow still sees enough 1 by 2s and 3-ways to keep a lid on vol but there’s little doubt there is extreme complacency with no fear anywhere on the board.
  • The shape of the 2018 vol curve still puzzles me, I see little justification for M in particular to be under K and then under the rest of the board. I’d be short small K, long M, and short something in V against as a vol “fly”. Something in the 265-290 area strike-wise makes sense to me.
  • I also look at the value of the U/V straddle spread and it makes the V/X vol spread look attractive to me - long the X. I realize option flow has pressured X and Z as of late, but for .03, the nickel wide straddle spread in V/X looks like an attractive price to own the X.
  • I also still think call skew in Q1 2019 looks like an attractive long, though I wouldn’t chase it and I would sell something against it. I like owning FH19 calls in the 4.25 and 4.50 range hedged, I’d sell something like the V 310/350 c/s hedged against it (volumetric). A huge washout is the most significant risk in such a position, I feel more comfortable with it if I have on the long M gamma vs. the V so I have 6 weeks of protection against such a move.
  • Since my own bias is still sideways higher I also like the levels in MQ 260/300 fence xed up. I like buying the put and the hard deltas on the hedge. I think we may work our way higher eventually and I think it will be orderly.
  • I still like two trades in JV19. The first I have mentioned several times - the J9 fences hedged, long call, short put. Something like the 2.25/3.25 or 3.50 fence at flat skew feels like good risk/reward. It should get easier to do with Cal19 260/300 fence getting sold in size. I also would ease into the same J/N/V futures fly that worked so well in 2018 - it’s very early so I would just start to dip a toe (long the N leg).

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

April 5, 2018 

  • The daily ranges, volumes and vol have suffered greatly these past couple of weeks. Break-evens for the fronts are now well under .04, a tough level to keep a short vol/gamma position. The flow still sees enough 1 by 2s and 3-ways to keep a lid on vol but there’s little doubt there is extreme complacency with no fear anywhere on the board.
  • The shape of the 2018 vol curve still puzzles me, I see little justification for M in particular to be under K and then under the rest of the board. I’d be short small K, long M, and short something in V against as a vol “fly”. Something in the 265-290 area strike-wise makes sense to me.
  • I also look at the value of the U/V straddle spread and it makes the V/X vol spread look attractive to me - long the X. I realize option flow has pressured X and Z as of late, but for .03, the nickel wide straddle spread in V/X looks like an attractive price to own the X.
  • I also still think call skew in Q1 2019 looks like an attractive long, though I wouldn’t chase it and I would sell something against it. I like owning FH19 calls in the 4.25 and 4.50 range hedged, I’d sell something like the V 310/350 c/s hedged against it (volumetric). A huge washout is the most significant risk in such a position, I feel more comfortable with it if I have on the long M gamma vs. the V so I have 6 weeks of protection against such a move.
  • Since my own bias is still sideways higher I also like the levels in MQ 260/300 fence xed up. I like buying the put and the hard deltas on the hedge. I think we may work our way higher eventually and I think it will be orderly.
  • I still like two trades in JV19. The first I have mentioned several times - the J9 fences hedged, long call, short put. Something like the 2.25/3.25 or 3.50 fence at flat skew feels like good risk/reward. It should get easier to do with Cal19 260/300 fence getting sold in size. I also would ease into the same J/N/V futures fly that worked so well in 2018 - it’s very early so I would just start to dip a toe (long the N leg).

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

April 5, 2018 

  • The daily ranges, volumes and vol have suffered greatly these past couple of weeks. Break-evens for the fronts are now well under .04, a tough level to keep a short vol/gamma position. The flow still sees enough 1 by 2s and 3-ways to keep a lid on vol but there’s little doubt there is extreme complacency with no fear anywhere on the board.
  • The shape of the 2018 vol curve still puzzles me, I see little justification for M in particular to be under K and then under the rest of the board. I’d be short small K, long M, and short something in V against as a vol “fly”. Something in the 265-290 area strike-wise makes sense to me.
  • I also look at the value of the U/V straddle spread and it makes the V/X vol spread look attractive to me - long the X. I realize option flow has pressured X and Z as of late, but for .03, the nickel wide straddle spread in V/X looks like an attractive price to own the X.
  • I also still think call skew in Q1 2019 looks like an attractive long, though I wouldn’t chase it and I would sell something against it. I like owning FH19 calls in the 4.25 and 4.50 range hedged, I’d sell something like the V 310/350 c/s hedged against it (volumetric). A huge washout is the most significant risk in such a position, I feel more comfortable with it if I have on the long M gamma vs. the V so I have 6 weeks of protection against such a move.
  • Since my own bias is still sideways higher I also like the levels in MQ 260/300 fence xed up. I like buying the put and the hard deltas on the hedge. I think we may work our way higher eventually and I think it will be orderly.
  • I still like two trades in JV19. The first I have mentioned several times - the J9 fences hedged, long call, short put. Something like the 2.25/3.25 or 3.50 fence at flat skew feels like good risk/reward. It should get easier to do with Cal19 260/300 fence getting sold in size. I also would ease into the same J/N/V futures fly that worked so well in 2018 - it’s very early so I would just start to dip a toe (long the N leg).

April 5, 2018 

The daily ranges, volumes and vol have suffered greatly these past couple of weeks. Break-evens for the fronts are now well under .04, a tough level to keep a short vol/gamma position...

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