nab2807

Spreading Oil and Natural Gas: A Post-Labor Day Plan

Another note of concern to investors considering this trade. This is essentially a seasonality trade but remember that seasonality can be easily be trumped by overriding market sentiment.

The risk at the moment is that in the short term NG prices are likely to fall given the discovery of natural gas shale in the US.

I anticipate the spread to widen before narrowing as automakers and industrials adjust to natural gas use in place of crude.

Spreading Oil and Natural Gas: A Post-Labor Day Plan

$HARK&PAUL -

It shows that you only read the 1st 30-40 words of this piece. The whole point of this trade is that he is not taking a directional bet on NG prices but on the spread between NG and crude. You would actually be making money if crude fell to 55 as long as NG does not fall by as much! This is a relative trade so you don't care about the direction of movements as long as the spread narrows.

My only concern is that in the 1:1 spread introduces an element of directional betting on the movement of the more expensive contract i.e. in this case the downward direction of crude.

The energy equivalent trade is in effect the safer bet.