Nat Gas Mini

[jasonbraswell]

I'm actually still bullish based, in part, on the CoT. The primary use of the CoT, I believe, is to compare all the groups' current position sizes to their historical position sizes. If all the groups are at a historical extreme, i.e., if they have committed all the money they have to a particular direction, it makes a reversal more likely, in my opinion, as all they can really do is close out their bets.

If you look now, or especially before this latest run up, you see that commericals, for example, are at a historical, net short extreme. That tells me they are more likely to buy this shit up.

 

[scriabinop23]

Quote from ParisJOM:

I don't understand your logic. For every contract open there is both a buyer and a seller. How could one possibly conclude that there is more/less buying/selling pressure from a change in open interest ?

If 20000 contracts close out their shorts by buying from people closing out their longs, open interest is reduced by 20k.

If 20000 contracts are purchased from people entering new shorts, then open interest increases 20k.

So a 20k net drop in open interest implies much of this past week's rally has been short covering, as opposed to a net increase of both longs and shorts.

So to conclude: with less shorts remaining to cover in the market, there are less potential buyers (assuming news on the market doesn't change to be any more bullish than it already is).

Back to my question: does anyone know here contract closing requirements for noncommercial/speculative traders? Do these hedge funds or large bank traders have methods to prolong or even entirely avoid contract closing of physical contracts to expiration? (in other words, for shorts to avoid buying up the market) I'm wondering if nymex futures contracts can be traded OTC after expiration ...

 

[scriabinop23]

Quote from jasonbraswell:

I'm actually still bullish based, in part, on the CoT. The primary use of the CoT, I believe, is to compare all the groups' current position sizes to their historical position sizes. If all the groups are at a historical extreme, i.e., if they have committed all the money they have to a particular direction, it makes a reversal more likely, in my opinion, as all they can really do is close out their bets.

If you look now, or especially before this latest run up, you see that commericals, for example, are at a historical, net short extreme. That tells me they are more likely to buy this shit up.

Devil's advocate: why would producers choose not to deliver on their sold contracts if:

1) potential weakness exists in the November cash market due to weakening weather forecasts and storage situation (look at NOAA climate prediction model for November).

2) they have no obligation to close contracts, as noncommercials/speculators do.

I think the noncommercial COT side of things can tell a little more about what potential exists for the remainder of a physically delivered contract.

 

[scriabinop23]

by the way, all this talk about COT report analysis has got me wondering if there is a source for commercial vs. noncommercial reports broken down by each future's month.

Its actually pretty hard to deduce from COT reports what is based from net #s of an entire 3 year strip. I'd like to know what is happening on each month.

Anyone know?

The recent nymex link. (nymex.com/media/date.pdf) is very useful, but doesn't show commercial vs. noncommercial info on the open interest.

 

[jasonbraswell]

Quote from scriabinop23:

Devil's advocate: why would producers choose not to deliver on their sold contracts if:

1) potential weakness exists in the November cash market due to weakening weather forecasts and storage situation (look at NOAA climate prediction model for November).

2) they have no obligation to close contracts, as noncommercials/speculators do.

I think the noncommercial COT side of things can tell a little more about what potential exists for the remainder of a physically delivered contract.

I tend not to try to reason these things out. I simply look at the past pattern of numbers versus price and infer accordingly.

However, to answer your question, the lack of obligation to close out contracts for hedgers is irrelevant. Only .3% of NYMEX contracts get delivered on. That means that the VAST majority of hedgers close out their position.

Also, with regards to #1, again, cash prices have NO predictive value for the futures in this market. Zero.

 

[ParisJOM]

Quote from scriabinop23:

If 20000 contracts close out their shorts by buying from people closing out their longs, open interest is reduced by 20k.

If 20000 contracts are purchased from people entering new shorts, then open interest increases 20k.

So a 20k net drop in open interest implies much of this past week's rally has been short covering, as opposed to a net increase of both longs and shorts.

So to conclude: with less shorts remaining to cover in the market, there are less potential buyers (assuming news on the market doesn't change to be any more bullish than it already is).

Back to my question: does anyone know here contract closing requirements for noncommercial/speculative traders? Do these hedge funds or large bank traders have methods to prolong or even entirely avoid contract closing of physical contracts to expiration? (in other words, for shorts to avoid buying up the market) I'm wondering if nymex futures contracts can be traded OTC after expiration ...

Contrary to trying to prolong their positions, all of the funds that I have worked with tend to roll/close their positions at least a few days before expiry.

 

[scriabinop23]

Quote from jasonbraswell:

Also, with regards to #1, again, cash prices have NO predictive value for the futures in this market. Zero.

I'll concede -- my cash theory (as in $2 spread) from a few weeks back didn't pan out too well.

On the other hand, I meant producers selling contracts at a premium may not want to risk a drop in spot prices if warm weather came, so instead they'd prefer to just deliver on their sold contracts. So if a producer sold gas at 7.25, he may not want to risk selling it at cheaper prices (lets say weather warms up and cash market drops to 5.xx range).

I wonder what the delivery percentage on commercial sold contracts for nat gas is. Is this information available anywhere?

 

[ParisJOM]

Quote from scriabinop23:

If 20000 contracts close out their shorts by buying from people closing out their longs, open interest is reduced by 20k.

If 20000 contracts are purchased from people entering new shorts, then open interest increases 20k.

So a 20k net drop in open interest implies much of this past week's rally has been short covering, as opposed to a net increase of both longs and shorts.

So to conclude: with less shorts remaining to cover in the market, there are less potential buyers (assuming news on the market doesn't change to be any more bullish than it already is).

Back to my question: does anyone know here contract closing requirements for noncommercial/speculative traders? Do these hedge funds or large bank traders have methods to prolong or even entirely avoid contract closing of physical contracts to expiration? (in other words, for shorts to avoid buying up the market) I'm wondering if nymex futures contracts can be traded OTC after expiration ...

Sorry for not having included in my previous post:

"If 20000 contracts are purchased from people entering new shorts, then open interest increases 20k." ... Not necessarily, these new shorts could have very well been matched with existing short positions that are closing out their positions... in which case open interest remains unchanged. In any case, I don't see how this could be indicative of direction. Almost all open positions (except a minute % taking dlivery) wil be closed out, and for every open long position there is an existing short position.... an almost equal number of long & short positions will ba closed out before expiry. Maybe I am missing your point ?

NYMEX contracts, stricto sensu, can not be traded OTC. Of course, they can be off-set via ISDA type agrements, but in most cases, those who prefer to enter ISDA agreements tend to deal in these OTC contracts totaly independantly from exchange traded contracts. If one wants to trade OTC (which is often done either to avaid certain regulatory constraints or to implement conditions not incorporated in the standardised exchange traded contracts), I don't see why one would bother trading the exchange traded contract in the first place.

 

[ParisJOM]

Quote from scriabinop23:

...I wonder what the delivery percentage on commercial sold contracts for nat gas is. Is this information available anywhere?

I'm not sure where you would find this information, but I suspect it would be a very small % and irrelevant. Most of the "real deals" that imply delivery are OTC and unpublished.

 

[petrotrader]

Quote from ParisJOM:

NYMEX contracts, stricto sensu, can not be traded OTC. Of course, they can be off-set via ISDA type agrements, but in most cases, those who prefer to enter ISDA agreements tend to deal in these OTC contracts totaly independantly from exchange traded contracts. If one wants to trade OTC (which is often done either to avaid certain regulatory constraints or to implement conditions not incorporated in the standardised exchange traded contracts), I don't see why one would bother trading the exchange traded contract in the first place.

NYMEX look-a-likes (mirror images of NYMEX contracts) are very liquid in the OTC market. A lot of shops prefer OTC over NYMEX for numerous reasons i.e. if they trade OTC that they don't have to deal with the cash flow issues related to futures, they simply post a letter of credit with their counter-party.

So to answer your question (I think, not positive that this is what you are asking), yes you can take an offsetting position in the OTC market via a look-a-like or if the situation warrants, you can also use an EFS (exchange for swap) or EFP (exchange for physical).