Skip to Content
News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

Free Trading Guides
Subscribe
Please try again
Select

Live Webinar Events

0

Economic Calendar Events

0

Notify me about

Live Webinar Events
Economic Calendar Events

H

High

M

Medium

L

Low
More View More
Short Natural Gas: Top Trade Opportunities

Short Natural Gas: Top Trade Opportunities

Katie McGarrigle, Contributor

Share:

What's on this page
Equities Forecast
Equities Forecast
Recommended by Katie McGarrigle
Get Your Free Equities Forecast
Get My Guide

Fresh on the heels of the US-EU partnership to reduce Europe’s dependence on Russian energy sources, Natural Gas futures continue to reach new highs. Natural Gas contracts are up nearly 40% YTD and supply substitution is likely to remain a focus over the next few months.

YTD Percentage Returns

Source: tastyworks

Implied volatility has expanded in the last few trading sessions, opening up opportunities to sell option premium with the expectation of a volatility contraction. With monthly expirations in /NG futures, traders can look at a variety of options trading strategies based on their directional assumption and short and long-term outlook. Additionally, traders looking to get exposure outside of utilizing futures options can also consider a correlated ETF like UNG.

3 Month Correlation of Energy Products

Source: tastyworks

Over the next 90 days, the expected move is +/- 1.37 in the futures. /NG futures options typically demonstrate call skew, meaning that the call options often trade richer than their corresponding, equidistant put options. With that in mind, traders might be able to go further out of the money on the call side and still collect adequate credit, enhance their breakeven, and improve their probability of success. Options strategies that take advantage of call or “reverse” skew are the Call Ratio, the Call Broken Wing Butterfly, the Reverse Jade Lizard, and Dynamic Width Iron Condors to name a few.

Personally, I’ll be looking at bearish-to-neutral setups in /NG futures options over the next three months in hopes of sideways to downside price action. As buying power is always top of mind for traders in smaller accounts like mine, a defined risk options strategy is my go-to. Plus, given the volatility in recent months, having a defined profit and loss on entry enables me to step away from my platform and protect myself if I’m directionally wrong.

Reverse Jade Lizard P/L Chart Example

Source: tastyworks

Call Broken Wing Butterfly P/L Chart Example

Source: tastyworks

Written by Katie McGarrigle, Host of Options Trading Concepts LIVE, tastytrade

Trade Smarter - Sign up for the DailyFX Newsletter

Receive timely and compelling market commentary from the DailyFX team

Subscribe to Newsletter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES