Natural Gas prices are highly volatile and prices fluctuate based on many factors including the weather outlook, production supply and demand.
In this video we will look at:
- An Incredible Opportunity In Natural Gas Right Now
- How To Place An Option Trade In Nat Gas (Showing a real example on the option trading platform)
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Hey guys, Darren here. Thanks for watching. We talk about action steps you can take today to increase profits and reduce risks in your portfolios by trading options.
Before we start, if you appreciate all the research and information that goes into making a video like this, it does help out tremendously if you hit the like button or subscribe to be notified of more videos like this.
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Be sure to download the FREE options Workshop in the link below.
It talks about the two main benefits of trading options over buying stocks.
DISCLAIMER, I am not a financial planner and I am not recommending trades. Please do your own research and if you are new or learning options, I recommend you start small.
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What is the opportunity in Natural Gas right now?
Cold weather increases the demand for natural gas since people need to run their heaters which burn natural gas in order to stay warm. Politics as well as the oil and gas companies determine how much natural gas is actually produced in order to fulfill the demand.
But let’s be honest guys. We typically aren’t that great at predicting the weather and we can’t really control politics nor how much the oil and gas companies decide to produce.
However, what we do know because there is no prediction necessary is where Natural Gas has been trading over the last year. You can see from the chart on Tradingview, Nat Gas has pretty much stayed above the 2.1 level for most of the past year.
I think this is an incredible opportunity right now! Any time that I am able to sell a put vertical spread at the lows for the year and this level and collect about ⅓ the width of the strikes I am doing it.
How To Sell A PUT Vertical Spread Option Trade In Nat Gas (Showing a real example on the option trading platform)
Let’s go to the Tastytrade trade platform. It’s the best platform for trading options. I’ll put a link down below.
We go to the trade tab and punch in /NG in the upper left.
We pick the May 25 option chain. Most of the time I like to go closest to 45 Days to Expiration. However, with Futures I’ll often go closer to 20 days since they seem to move too slow out at 45 DTE.
Now we click on the Bid to sell the 2.15 Put and Ask to Buy the 2.05 Put and we collect $270.
We switch to the CURVE mode by clicking on Curve and can see our profit zone in green.
As long as the stock price stays above the 2.15 short Put strike price in the next 27 days we keep the entire $270. Nat Gas Futures is a big product and we limit our max loss to $730 if Nat Gas does move down further.
The breakeven is 2.15 short strike – .027 collected = 2.123. This is a 2.123/ current price 2.381 = 11% move down before we start losing money.
Worst case if Crude moves down then we close and roll to the next option cycle and collect additional premium. So our profits are just delayed a little.
After placing this trade if we get a quick jump up and I can close for a $100 winner is just a couple of days then I will. I’ll then rinse and repeat and look to put it right back on in a down move.
If there is a further drop down, I’ll likely add one more traunch or vertical spread in order to average down and potentially double my profits.
Lastly, Nat Gas moves quickly and the price may have already moved up by the time you are watching this video. However, this is a trade that I have already done several times this year and there will likely be an opportunity to do it again soon. I put in a GTC order (Good Till Canceled) to sell it again if it hits my level.
If you want to know how I use GTC orders let me know in the comments below and I can do a video on it.
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