After a long, brutal summer for nat gas, a bottom appears in sight.
This thesis will require a fully fleshed write up at a later date, but for now, two things indicate we may be nearing a bottom in natural gas. The first is we're finally starting to see a slowdown in the monster storage builds that had become routine earlier this summer. I'm not saying we're out of the woods yet, but last week we undershot expectations by nearly 10%, so this is putting some life into the trade at the moment.
The second is positioning. CFTC data shows nat gas traders have accumulated a massive short position, and the combination of stretched positioning and more bullish (or at least less bearish) storage builds could set us up for a bottom shortly.
Meanwhile, prices have reacted strongly to the $2.10 level in recent weeks, and a wave of hotter than expected temperatures on the horizon is also helping the situation. Add it all up, and it looks like we have the ingredients to at least mark a short-term bottom in this beaten down commodity. So here's the trade I'm making this afternoon:
APS Trade 25:
Sell to open 1 September Natural Gas $2.10 Put for $0.06
As stated earlier, stay tuned for more in-depth analysis on this topic going forward.
Thanks for reading and good trading,