Excess Drilling, Seasonal Move Sets Table for Natural Gas Call Sellers
September 19, 2017 Update
Good afternoon. This is James Cordier of OptionSellers.com with a market update for September 19th. Well, as the 3rd quarter of 2017 starts coming to a close, and we start looking at the 4 th quarter, believe it or not, are we happy with our performance so far in 2017? I can absolutely say yes; however, with 3 full months left to go, we are certainly going to try and add to that and make 2017 a very good year to remember. A lot going on in the market now, of course, Kim Jong Un is stealing all the headlines by lighting off his rockets yet again. The Republican President is making deals with Democrats right now – quite interesting.
Normalization of interest rates, not only in the United States but also in Europe, looks like it’s just around the corner. If you’re ever going to raise interest rates, let’s do it while the stock market is at all-time highs. Certainly, causing as little flutter to the economy and market as possible, let’s normalize interest rates and get that over with. I think that’d be a very good idea for everyone involved. With a $20 trillion deficit, I don’t think that we are going to be having interest rates go up very fast, but raising them a quarter here and there, I think, is a very good idea. We’ll have to wait and see if everyone else feels the same way, especially Janet Yellen and her team.
Going forward into the months of September and October offer seasonal trades that we like very much. Long term fundamentals in both natural gas and coffee, in our minds, is either neutral or neutral to bearish. The coffee supply in the United States is at all-time record highs at a time when Brazil is basically making their crop. The months of October and November is when the coffee crop there flowers, they turn into cherries, and then will probably become the largest crop ever in history harvested from the great nation of Brazil. That will probably add more coffee beans to the market in the next 6-12 months, and we think selling options there 70% above the current price is probably a good idea.
In natural gas we have practically the same timing. The market usually rallies in September and October, building supplies for the winter, and then we do like the idea of being short with that market by selling calls in natural gas 80% above the current price. With all the drilling right now going on in the United States, with $50 oil and the ability to produce oil up to $35 a barrel, we think that the offset of oil production, of course, is natural gas – the bi-product of all that drilling.
Natural gas probably costs anywhere from $0.90-$1.10 to produce right now and the more drilling that goes on, especially in Texas, the more natural gas we’ll have over the next 6-12 months, as well. Natural gas is in the low to mid $3 range. We think selling it at $6-$7 is going to be an excellent idea and we think we’ll be taking profits on that trade before year’s end.
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