Another hedge fund on the brink

C

Comanche

Hearing a rumor from several sources that another large hedge fund made the wrong bet in natty. These guys piled on length from a much higher price (>8.30 avg jan) and have ridden the position down and are now piling on more to avg down. This explains the strength of the last 2 sessions and the whole position is now rumored to hinge on tomorrows eia storage report and a return of cold forecasts. If the report is anything but above expectations, this thing may drop hard on the large liquidation.

this is the deja vu of the amaranth strategy, buy it well over fair value and hold it against bearish fundamentals, defend it by adding more and pray to the weather gods. as they say in vegas, good luck!
 
Don't know anything about the story, however, I doubt that any large hedge fund is in any serious trouble from a 60+ cent move in January Natural Gas.
 
not in total fund liquidation trouble, but in massive position liquidation trouble. who is gonna let them out easy? not gonna be much of a bid for them with a $7 handle on it. just a nice black eye for these guys anyway. they are around a 25 b multi strat , diversified fund from what i know.

in the 10 yrs i have been trading natty, i have never seen such a bearish fundamental picture as the current one is (rest of winter).
yes we will have a return of cold at some point, and no we won't run low on supply balance of winter. we should start april 1 with roughly 1,800 in the ground.
 
Quote from Comanche:

Hearing a rumor from several sources that another large hedge fund made the wrong bet in natty. These guys piled on length from a much higher price (>8.30 avg jan) and have ridden the position down and are now piling on more to avg down. This explains the strength of the last 2 sessions and the whole position is now rumored to hinge on tomorrows eia storage report and a return of cold forecasts. If the report is anything but above expectations, this thing may drop hard on the large liquidation.

this is the deja vu of the amaranth strategy, buy it well over fair value and hold it against bearish fundamentals, defend it by adding more and pray to the weather gods. as they say in vegas, good luck!
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Great post, very interesting
 
That fund is S.O.L from the looks of it. The return of cold is gone from all the predictions through the start of January (then again the skill of 15 day predictions is pretty low).

January Natty has dropped $0.60 since your first post, and the weather/storage issue looks even worse!

What's your take? I admit I had been pissing in my pants for a bit since I had gone short at $8.20 and the price went past $9 for a few bars, but things have swung back. I'm just not sure what to make of today, seems like the $7.00 mark had some strength to it.
 
6.91 was a fibonacci retracement level and acted as solid support first time down, another reason for the rebound was the strength in crude on jan expiry today. But fundamentals are still horrible, (cash hub today traded -.70 back from jan). As bearish as it all is, i feel that we will get a larger profit taking induced short covering rally in jan (feb futures) that will ignore the fundamentals, a pure market dynamic move really. Hard to be a bottom picker in here but i like it down to 6.55 before establishing any kind of long position. Me, i plan on bottom picking via the march/april spread at that point as that is a spec trade favorite spread and is already trading flat. risk/reward on it looks good with 60% of winter still in front of us, just don't be too greedy on taking $$ on it as the storage economics this year should keep it in check to some degree.
 
By the way, that hedge fund in question has not capitulated their position from what i have seen, but i did notice that the Q1/Q3 spreads moved out today making me think that maybe they are rolling their length into Q3 as it is a much better safe haven at these levels. almost a concession that the bal of winter fundamentals suck. it is right to be bullish Q3 and Q4 though as the regular hype machine will be in full effect within the next month and a half (active hurricane season, summer scorchers,.......)
 
Quote from Comanche:

6.91 was a fibonacci retracement level and acted as solid support first time down, another reason for the rebound was the strength in crude on jan expiry today. But fundamentals are still horrible, (cash hub today traded -.70 back from jan). As bearish as it all is, i feel that we will get a larger profit taking induced short covering rally in jan (feb futures) that will ignore the fundamentals, a pure market dynamic move really. Hard to be a bottom picker in here but i like it down to 6.55 before establishing any kind of long position. Me, i plan on bottom picking via the march/april spread at that point as that is a spec trade favorite spread and is already trading flat. risk/reward on it looks good with 60% of winter still in front of us, just don't be too greedy on taking $$ on it as the storage economics this year should keep it in check to some degree.
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I've only been trading very small e-mini positions with natty for three months to familiarize myself with the market dynamics. I am a geoscience major specializing in energy and climate issues, but I do not want to end up working for Schlumberger in Libya or Algeria or the like. My only other option, where I won't be living a hand to mouth existence is working as an energy trader (well, those are the only other groups that seem to recruit from my department).

So please try to bear with my naive questions, but are you advocating a march short and april long, in hopes that the spread widens?

I love the last bit about not being too greedy on that spread trade, if only Brian Hunter had booked some of what I am sure were enormous March/April spread profits in April-June. Bulls/Bears get fat, hogs get slaughtered?


I asked what you thought is happening near term because I had gone short at 4AM EST this morning at $7.11 since those early morning trades around $7.10 seemed totally inane to me and woke up at 9 AM to a nice $0.20 profit but I had thought the fibonacci retracement level was at $6.80 and so I was holding out for those prices. I was a bit worried when the price popped back up at the open of floor trading. Maybe, I shouldn't have been such a penny-pincher, but the fundamentals as you said look like total crap. I can't see one piece of even marginally good news except that the 3.4 SST El Nino anomaly seems to have peaked at around 1.25. The question I have is, is that all priced already? I hope you're right on $6.55, I think I will cover in the lower $6.70's.

You seem to know your stuff Comanche, I am so sick of reading Bloomberg reports where they have no idea what caused the price movement for the day.

What books/magazines/websites do you subscribe to (for natty and/or crude information) and how have you acquired your trading knowledge? (i.e. can you tell us more about yourself)

Thank you,
Gene
 
best of luck trading this -- i've had mixed success with the contract. got caught in the long just like the hedge fund. avg price of 8.25 on jan, got out .50 under that avg mostly on thursday.

that storage # was great, but ultimately the weather did me in.

its a difficult contract to trade, and don't get too stubborn about price targets -- the minute you get comfortable, the weather forecast changes, and your in the money trade is suddenly running away from you.

all in all, I've taken about 3 substantial trades recently. 1 big winner, which i pyramided, was playing the october november spread. it was ridiculously wide (thanks to amaranth) and thought it should've closed. good play, and gave me some undue confidence.

then i went short november/dec based on the concept (too early) of anticipated storage overflow, only to learn some brutal lessons about scale in methods, countertrend trading, maximum appropriate sizes for me, etc.. Very tough month. Then long Dec/Jan ... and we know how that went.

I'm well capitalized enough, and like position trading in general because markets typically give me some slack to scale in and out getting optimum prices or at least an opportunity to exit with reduced losses. But natty can be brutal either way .. price and value is an ethereal concept. So while I've traded several full size contracts for my account before on outright positions, I'm down to max 3-4 qg's, and to be honest, I'd be much happier to trade something with half or even quarter the leverage of the existing qg ...

all in all, though, even working with 0 leverage is still not a recipe for success. its just a tough bastard to trade.

so in my current condition trading it for about 6 months, I'm to the point where if I am so motivated to make a trade, my stop losses will be tight, and if I am VERY motivated, my scale ins will likely have stop losses just as tight. (meaning .02 -> .15) entry on this thing is tough.

here's the bible from the "retail natural gas trader on the outside" (me):

Natural gas intelligence puts out articles. thats one source of data. they offer free trials. the daily report costs $1200/yr or so. another source of reports is Bentek energy - their supply/demand report is nice, and is a few K/yr.

I know Platts puts out a report thats very pricey, but I don't have any personal experience with it.

ICE also publishes (free at end of day) day-ahead cash prices at all the hubs, so you can get an idea of what immediate demand is calling for the market.


All in all, though, I'm slowly figuring out that all the reports in the world can't help you trade natural gas. If you want an exceptional edge, I'm concluding you need two things to really do well: 1) knowledge of what big players are currently doing, 2) weather forecasts hooked into an IV. Most important is #1.

by the way, i use tradethenews.com for my general other trading, and find it affordable and see a high correlation between the energy related news I see on it and the oil/gas markets. Thats $50/month for the basic text package and with it, I find that my results wouldn't probably be much different than without all the other more sophisticated and more expensive sources.

[sorry if I hijacked the thread venting on my own failures on this contract. hopefully my contributions are of some worth to anyone else out there]
 
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