Most people think buying natural gas going into the winter is a no-brainer. The cold weather is coming and consumers are going to be using a lot of natural gas to stay warm. The logic makes sense when you look at the current retail pricing which increases going into the winter. The futures market is not based on today’s prices, so logic should tell you to start selling natural gas going into the winter.
The retail demand could surge in the winter, but the wholesale prices paid by the distributors are higher in the fall. The wholesalers purchase natural gas in the fall, which causes the seasonal spike in future prices. The wholesale prices usually see a peak around November as wholesalers peak their input into storage tanks for the winter. As the seasonal downturn starts to take shape, you will see the wholesalers slow down on adding supply as they meet their seasonal demand mega-targets. This current US supply level is close to historical highs at 3.595 trillion cubic feet.
There’s a few ways you can approach the natural gas trade including selling futures, and selling call options. I prefer selling February, and March calls that are out of the money. A few strikes that stick out are; selling February 420.0 calls for $750, or selling the February 430.0 calls for $675. I also like selling the March 490.0 calls for $600 or sell the March 500.0 calls for $550.
If you prefer to be a little more conservative then you could wait and watch the market over the next 4 weeks for a rally before selling options, or selling futures.
Feb ’18 Natural Gas Daily Chart