Valor View – NG – Jul 29 – August Expiry & Cal '26 Weakness

Opex & Market Overview

• Monday had two things going. August expiry which pinned it towards the $3.00 strike and some deal in the back which saw everything getting hit in the backs
• Cal '26 was almost 10 cents down before recovering later in the day
• This latest move down was accompanied with put selling and getting long delta through at least Cal '26, leading to put skew being down everywhere as can be seen below
• Skew was possibly higher in U calls as U 4.50 calls were the highest traded volume on the screen, possibly covering the shorts for few tics

Price & Spread Analysis

• People even resorted to 1x3 put spreads
• Jan 3.50/3.00 1x3 put spread 0.042 (collect). This trade is long about 10 delta
• Feb 3.50/3.00 1x3 put spread traded 0.135 (collect). This trade is long about 20 delta
• So, people took advantage of the sell off by selling puts
• The trades can make 54 to 64 cents respectively if we pin the expiry at 3.00 (just like Aug)
• With the sharp move down in '26 and Apr 26 below $3.50 for a while, it seemed like traders took profits
• JV26 3.25/2.75 ps got sold for 16 cents
• Sep 3.00/2.75/2.50 put fly got hit for 0.042
• The new bearish trades seemed to be mostly teenies
• XH 2.00/1.50 1x2 ps traded 0.006
• U/V -0.15/-0.20 1x2 ps cso trade 0.001, looking at a settle between -0.15 and -0.25, possibly pinning -0.20

CSO & Calendar Spreads

• Speaking of CSOs, I think once again the CSO strikes came into play with the curve almost down flat, Q/U widened sharply during the day with -0.05 put coming into play
• For reference, U/V has OI all the way -0.05 to -0.20 put
• Someone betting on U/V going to -0.20 is still bearish the front, we seemed to have bounced off the $3.00 strike though for now
• Aug moved from that rally to 3.80 to 3.00 and V/F widening only about 10 cents which shows you how many market participants shifted to selling higher priced winter and Cal '26 rather than the front
• Production is already at the highs and the rig count increases is not helping either
• E.g. Paloma Energy went from 0 rigs at start of 2025 to 5 rigs in Q2, their full deployment

Vol & Hedging

• Looks, like the smart people have been aggressively hedging Cal'26 ever since that short rally few days back when Jan refused to go over $5.00
• Increasingly, for the producers, it will be a game of what comes first, the rigs or the "hedges"
• I was looking at the winter (XH) skew and almost every year, it bottoms out around this time period
• Not sure if these production levels and high EoS and increasing rig counts is making anyone bullish at the moment though

Crude & Outlook

• Crude rallied as the Commander-in-chief has changed the deadline from 50 days to 10-12 days now Aug 7-9th, buy vol ahead of it?
• People are already on to that trade with vol roofing again. Now, the next trade in early Aug will depend on if you believe in TACO or FAFO trade
• Unfortunately, that's the kind of kick-ass analysis that moves the market these days
• Also, Shweta is going to be aggressively long her 1 lot position on a 2-3% drop in natural gas. Not sure, if it better or worse than your in-house analysis
• The in-house analysts at many places haven't done good so far this year. Not sure if the following will be true in bonus week