Natural Gas(/NG) are the second most actively traded energy contract and have seen a large sell-off that has traders wanting to get long, but the steep contango makes staying long difficult as the cost basis rises with each forward.
The fundamentals of Natural Gas futures were discussed. The supply and demand situation was addressed as well as how demand has changed due to the increasing use of natural gas to produce electricity. Production costs and the delivery point were mentioned. The basics of the futures contract were set out on a table and explained.
How high stockpiles are helping to steepen the contango in the future spreads (month versus month) was explained. Also noted was the unusual situation in. Usually a decline in a commodity will see lower IV but this has not been the case here. IV and are high.
A trade idea was proposed of usingto get long , and using a futures to counteract the contango. The details were laid out in a table and the reasoning was explained.
Watch this segment of Closing the Gap-Futures Edition with Tony Battista, guest host Pete Mulmat and a special appearance by Mike Hart (Beef) from our research team for the valuable takeaways, a ndbetter understanding of the Natural Gas futures market.