Natural Gas

And now... What people are thinking about this winter widowmaker? It's trading at even whereas Mar14/Apr14 is @ 0.151 and Mar15/Apr15 @ 0.236.

It seems unusual. 0 acting as a resistance. If some fundamental nat gas traders can enlighten us on the situation...

Thanks a lot.:)
 
In fact I checked and it is not that unusual for Mar/Apr spread to go negative during the winter... Here are the spreads for the last 10 years.
They pretty much all start trading with apr at a big discount and head to 0 or a little bit more...

 
Guys, been following the thread. Great contributions.
Was wondering....I noticed front month NG has some nice intraday volatility. But was wondering what it trades with. Like if you look at WTI it has a strong correlation with the Spooz & the Euro. If front month crude is looking to surge it can usually be confirmed by strength in either of the fore mentioned.

Any idea what NG correlates with?
 
Quote from J-Law:

Guys, been following the thread. Great contributions.
Was wondering....I noticed front month NG has some nice intraday volatility. But was wondering what it trades with. Like if you look at WTI it has a strong correlation with the Spooz & the Euro. If front month crude is looking to surge it can usually be confirmed by strength in either of the fore mentioned.

Any idea what NG correlates with?
More...

Coal and electricity. A very popular spread trade is the spark spread which is nat gas vs electricity. Another is the dark spread which is coal vs electricity. Both coal and nat gas produce power. When one becomes too expensive, the other becomes attractive.
 
Quote from Maverick74:

Coal and electricity. A very popular spread trade is the spark spread which is nat gas vs electricity. Another is the dark spread which is coal vs electricity. Both coal and nat gas produce power. When one becomes too expensive, the other becomes attractive.
More...
what vehicles do you use to trade that dark spread?
 
BTW, someone was asking earlier about the best way to play nat gas without having to deal with the large contango effect. There is an ETF UNL that consists of the avg of each of the first 12 months of the nat gas curve. So it has a smoothing effect. You are basically long the one year curve. There still will be a contango but it's not nearly as sensitive. You do have risk obviously that the contract could go into deep backwardation. But that doesn't happen over night. And when it does, you'll get paid to be in UNG.
 
Quote from oldtime:

what vehicles do you use to trade that dark spread?
More...

Well, luckily there is a coal etf KOL. Electricity has a futures contract but it's very illiquid, for now. KOL is not terribly liquid either but it's there.
 
Thanks, Mav. Would you use them as intraday indicators? So, if strength/weakness in electricity or coal, NG should follow suit?
 
Quote from J-Law:

Thanks, Mav. Would you use them as intraday indicators? So, if strength/weakness in electricity or coal, NG should follow suit?
More...

Not sure I would use them intra-day. I don't put much faith in intra-day correlations. You are talking about trading noise and drift. Natty gas and coal are input costs to producing electricity which is the output. So the relationship is inversely correlated. As coal gets really cheap relative to nat gas, producers will switch over to coal to generate electricity. And vice versa when natty gets cheap and coal is expensive, the inverse will occur.
 
You must log in or register to reply here.
Back
Top