This was my first ever option selling trade.
Sold the 3.00 Calls@ $270 a couple days after natural gas experienced a pullback from the recent rally.and 2.55 puts@ $210 shortly after to convert my position into a strangle. Added a second layer of strangle at $2.80C@$220/ $2.65P@ 60$ after that and got out of the $2.80 sold calls as i got spooked. I realised that price action nearly breached my other side of the strangle in the coming days too. Definitely a lesson learnt not to play too close to the fire here…
Here is the basis of my trade. I reckoned that:
- $3 was a psychological barrier for further advance and the steep rally from $1.99 meant that the market had to take a breather and then decide on which direction to go. In addition, prices breached long term resistance line of $2.95. However, prices fell back steeply the day after.
- EIA (The U.S energy information administration) estimates did not put NG from breaching the $3 price mark for the next few months.
- The rally was the consequential aftermath of a gentle winter, which drove prices down. With a large NG supply glut still looming ahead, i felt that it was not a strong enough basis for a sustained rally.
- Seasonal charts suggested that natural gas prices experience a decline from July to Mid oct. The image below is taken from The Moore Research Center , Inc.