» » Valor View – NG – Feb 26 – Vol rallies, puts get bought ahead of EIA

Valor View – NG – Feb 26 – Vol rallies, puts get bought ahead of EIA

  • Vol continued its late day run up like yesterday
  • Today vol got bid when we started selling off into March expiry
  • Like we mentioned yesterday, vol run up at these levels potentially indicates downward pressure on prices
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Intraday Vol
  • Apart from the vol run up Q2 puts were in demand as well, further indicating increased bets on prices going down further now that March is off the board, weather looks iffy and spring is when shorts may try to press their position
  • Most Active trades indicate the same thing with strike interests at $1.50, $1.25 and even $1.10
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Daily Skew Changes
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Top Trades
  • On the other hand call buying interest is off the charts for next winter (esp Q1) and prices are trying to find a bottom (We will discuss the Q1 vol in a further report)
  • For the front to fall and winter not as much, spreads have to widen much more
  • 2016 has been a pretty close comparable year in terms of price and vol levels. Even the volatility patterns are pretty similar
  • Given how some of the vol spreads have been moving, we have been pointing to clients since Summer'19 the similarities between this season and 2016 and a possible sub $2 move
  • We make it very easy to compare the seasonal price/spread/vol trends in our models
  • As of Feb 24th the levels on the prices and spreads were within few cents for 2016 and 2020
  • The seasonal charts below are for Oct/Jan spread, Oct, Jan and Apr prices
  • Prices fell into early March pretty rapidly and V/F went into 50s which seems like a possibility here as well if prices were to fall into low 1.70s
  • Very interesting to note that we had a large rally from the March lows into July but V/F continued to widen into May since the rally was more winter led
  • This is where we potentially part ways with the similarities, given the pressure on the Calendar strips from the producers on any up move, a winter led rally seems unlikely this season
  • The LNG overhang is going to continue for some time and the uptick in production as we move into low demand spring season is not a recipe for the short covering rally bulls have been waiting for
  • Let's see if EIA tomorrow can stop the price bleed or gets sold regardless like last Thursday
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Seasonal Price & Spread charts