» » Valor View – NG – Mar 3 – Volatility continues – F/G, J/V CSO discussion

Valor View – NG – Mar 3 – Volatility continues – F/G, J/V CSO discussion

  • Volatility continues in the natural gas market both in futures and implied vol
  • There was a small expectation that implieds will taper off with the rally and it was true till early morning, but vol rallied later in the day
  • With both prices and vols going up, break evens are reaching 5+ cents and the market believes they are justified for now with everything going on currently
  • Couple of CSO trades in the Top Trades caught our eye
    • F21/G21 0.20 call traded 1cent
    • J20/V20 0.25 straddle traded 7.2 cents
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WPPB Image Addons
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WPPB Image Addons
  • With F/G trading at 3 cents, we were of the opinion that F/G itself will act like a call option with limited downside from here
  • Paying 1 cent for a 20 cent call seems expensive given that there is potentially only 1-2 cent downside in the spread at least until beginning of winter looking at last 2 years
  • Only way the call would make more sense is if the spread were to be more volatile this year and potentially going into contango before winter
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F/G seasonal chart
  • J price has been much more volatile than the J/V spread as the big move down and up have been pretty much flat with spreads not moving as much
  • Given the -21 to -29 range we have seen lately for J/V the 7.2 cent straddle seems expensive
  • Our take away from the trade is that traders are possibly expecting cash to get much weaker and the spreads moving much more going forward
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J & J/V Charts