This segment examines and discusses the natural gas futures market and focuses on the role of seasonality and how that impacts futures calendar spreads. Special guest Mike Hart (Beef from our research team) shares some of his professional experience.
Natural gas fundamentals and technicals are discussed. The details of the futures contract are laid out. A Natural Gas futures contract was displayed. The contract included the symbol, minimum tick size, value per tick, current price and notional value.
Natural gas is prices are heavily influenced by the supply and demand, as well as the expected supply and demand in the future. During the winter of 2014-2015 prices moved upwards due to speculation over future supply levels and rising demand.
A graph from March 2013 to present of the outside US temperature versus the price of Natural Gas (/NG) was displayed. Sometimes the highest prices are in the winter but not always. A 16 year seasonal chart of the price of Natural Gas (/NG) was displayed. Natural Gas’s highs and lows were broken down by month. The picture was not clear.
A trader can trade the outright but many will also trade futures calendar spreads (a near-term month against a longer-term month). The current spread is Dec 2015 (front month) against Jan 2016 (back month). The front month spread can be very volatile in winter months. Notional moves greater than $10,000 (1 point) are not uncommon.
A graph of the price of the Natural Gas Spread (front month minus back month) from 2001 to present was displayed. A 16 year seasonal table of the price of the Natural Gas Spread with which month the spread’s highs and lows were made was displayed.
A table of possible Natural Gas trades with an anticipation of a rise in Natural Gas prices was displayed (including the Widow Maker). The table included the action, spread, days to expiration (DTE), ticker, current price and margin required.
Watch this segment of “Closing the Gap-Futures Edition” with Tom Sosnoff, Tony Battista and special guest our Mike Hart (Beef) to learn Beef’s trade ideas and to learn more about the Natural Gas markets, seasonality and futures calendar spreads.